Mutual Fund Ratios

Mutual Fund Ratios

Review

In the below post we have tried explaining you about various Mutual Fund Ratios. These Mutual Fund Ratios are very helpful for evaluating Mutual Funds.

What is Beta in Mutual Funds?

Beta Ratio is a measure of mutual funds’ relative risk, expressed numerically; The beta can take on any value greater than or less than 0. The beta gives us a view of a mutual fund’s relative risk relative to the benchmark index.

Beta is not an indicator of the underlying risk of the Mutual Fund.

A beta value of less than 1 makes the Mutual Fund less risky, the beta value of 1 makes it on par, and a beta value of more than 1 means it is riskier than the benchmark index.

A lower beta is preferable.

 

What is Alpha in Mutual Fund?

Alpha Ratio is the excess return of the Mutual Fund over the benchmark returns.

The formula for Alpha is Alpha = (R – Rf) – beta (Rm-Rf)

Here,

R– MF returns

Rf– Risk-free returns. This is the maximum return you can get without taking any risk, the sources for the same being saving/FD returns and government bonds

Rm – Benchmark/Market returns

Suppose your MF gets a return of 16% with risk-free returns being 4%, benchmark returns are 12% with MF’s beta of 0.8.

Alpha = (16%-4%) – (12%-4%)*0.8 . The Alpha is 5.6%. The higher the Alpha, the better it is.

 

What is Standard Deviation in Mutual Fund?

The Standard Deviation of a mutual fund represents its riskiness. The higher the Standard Deviation, the higher the asset’s volatility. The higher the Standard Deviation, the higher the possibility of loss or gains. Lower SD means lower gains, but importantly it limits downside risks.

To help comprehend this, let’s take the below example on an investment of Rs 1000

FundSDGainLoss
X191190810
Y211210790

Gain = Investment * (1+SD) & Loss= Investment*(1-SD)

MF’s with lower SD’s are preferred.

 

What is R-Squared in Mutual Fund?

R-squared is the percentage of movement in a fund or security that the movements of a benchmark index can explain.

The R-squared value ranges from 0 to 1 and is usually expressed as a percentage between 0% and 100%. A value of 100% means that movements in the index fully explain all movements of a stock.

Limitation – R-square is a correlation, and a higher value doesn’t tell you whether the chosen fund is good or bad.

It also depends on the investment goals and medium. If the investment is in ETF, you would want the R-squared value to be as high as possible.

If you are looking for actively managed mutual funds, a high R- Square might be a bad sign, indicating that the fund managers are not adding sufficient value relative to their benchmarks.

 

What is Capture Ratio in Mutual Fund?

Over a given period, the capture ratio tells us to what extent  the fund has captured the positive return of its benchmark index and to what extent it has captured the negative return on the index.

To understand this important ratio better let us look at Capture Ratios of Parag Parikh Flexi Cap Regular Growth Fund

Capture RatiosFundCategoryIndex
Upside8993100
Downside2790100

Source – Morningstar

It shows the fund captures slightly less growth than the index and the category at 89%, but the critical point is the fund captures only 27% downside, which is much less than both category and index.

Ideally, you would want a fund that captures 100% of the upside, if not more. And at the same time, the downside capture ratio should be as low as possible.

 

Mutual Fund Expense Ratio

The expense ratio measures the expenses incurred by the fund manager in managing the mutual fund. It is calculated by dividing your operating expenses by the total value of your investments in a particular mutual fund.

SEBI has capped the expense ratio at 2.5%.

A lower expense ratio is better as it increases the actual return provided by the mutual fund.

 

Sharpe Ratio in Mutual Fund

The Sharpe ratio measures the risk-adjusted performance of a mutual fund by dividing a mutual fund’s excess return over a risk-free rate with the Standard Deviation of the fund’s return over a given period.

Sharpe Ratio Formula

Sharpe Ratio = (Average fund return – the risk-free rate of return) / standard deviation of the fund’s return

A higher Sharpe ratio denotes that a fund is performing well. However, if the Sharpe Ratio is negative, it implies that the fund is under performing with respect to the risk-free rate of return.

 

Best Sharpe Ratio Mutual Funds in India

Fund NameLaunchNet Assets (Cr)No of Stocks in the PortfolioTop 10 Stocks %1 Yr Ret (%)3 Yr Ret (%)5 Yr Ret (%)10 Yr Ret (%)Standard DeviationSharpe RatioFund Manager
SBI Technology Opportunities Fund01-07-199923022264.8240.1433.1727.5421.4318.131.77Saurabh Pant
Aditya Birla Sun Life Digital India Fund01-01-20003,176.003969.944.637.6431.0122.7520.491.72Kunal Sangoi
ICICI Prudential Technology Fund01-03-20007,909.004367.0551.9238.532.3625.122.851.61Vaibav Dusad
Tata Digital India Fund01-12-201549004071.8547.4136.0332.11--21.41.61Meeta Shetty
DSP Healthcare Fund01-11-20181,442.002466.961328.8----16.741.58Chirag Dagli, Vinit Sambre
Franklin India Technology Fund01-08-19987893561.4317.6128.8224.0718.6618.691.51Anand Radhakrishnan, Varun Sharma
Edelweiss Recently Listed IPO Fund01-02-20181,091.004434.1143.0832.98----19.871.41Bharat Lahoti, Bhavesh Jain
Parag Parikh Flexi Cap Fund01-05-2013199332652.834.927.6621.44--17.671.39Rajeev Thakkar, Raj Mehta
Aditya Birla Sun Life Global Emerging Opportunities Fund01-09-2008298----6.2616.89.093.913.41.38Vinod Bhat
BOI AXA Small Cap Fund01-12-20182137226.2360.7138.37----23.871.38Aakash Manghani,

 

Funds with Least Volatility

Fund NameLaunchNet Assets (Cr)No of Stocks in the PortfolioTop 10 Stocks %1 Yr Ret (%)3 Yr Ret (%)5 Yr Ret (%)10 Yr Ret (%)Standard DeviationSharpe RatioFund Manager
DSP Global Allocation Fund - Regular Plan01-08-2014116-----0.6511.398.15--10.021.12Jay Kothari, Kedar Karnik, Laukik Bagwe
Aditya Birla Sun Life Global Emerging Opportunities Fund01-09-2008298----6.2616.89.093.913.41.38Vinod Bhat
Aditya Birla Sun Life International Equity Fund - Plan A01-10-200712969--6.8213.4712.7811.5613.780.95Vinod Bhat
DSP World Agriculture Fund01-10-201166-----8.668.564.666.5214.010.82Jay Kothari
Sundaram Global Brand Fund01-08-2007143----12.2314.6611.347.6814.361.04Ashish Aggarwal, Rohit Seksaria,
ICICI Prudential FMCG Fund01-03-19999222758.9415.6410.9213.1915.314.510.54Ihab Dalwai
ICICI Prudential Global Stable Equity Fund (FOF)01-09-2013105----14.8712.029.27--14.560.77Priyanka Khandelawal, Rohan Maru
Nippon India Japan Equity Fund01-08-201424930--1.5910.889.37--14.90.69Kinjal Desai, Ajnu Chhajer
HSBC Asia Pacific (Ex Japan) Dividend Yield Fund - Regular Plan01-02-201410----0.1812.3910.969.2815.220.67B. Ashwin Kumar
SBI Magnum Global Fund01-09-19945,161.00364629.8818.6915.3718.0515.261.09R Srinivasan

 

Returns (1 Year & 3 Years)

 

*Data as on 21st January 2022

Also, have a look at Best Small Cap Mutual Funds & AMC Profiles,  If you need any assistance on Mutual Fund Ratios or How To Invest In Mutual Funds Feel free to contact Wealth Baba – Financial Planner & Investment Advisor in India. We will try to help you out in the best possible way.

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