personal-finance
How does Sharpe ratio help mutual fund investors?
Aug 02, 05:08

Past returns help to understand how your equity mutual fund scheme has done against other schemes. However, you need to look at another return measurement to understand how your scheme has performed in relation to volatility in the scheme or risks taken by your scheme. This is where Sharpe ratio can help. The ratio looks at additional returns a fund generates over risk-free return from an investment like a short-dated Government Treasury bill, for price volatility of the fund. If your fund has a higher Sharpe ratio, it means it has delivered better risk-adjusted returns. But check with your advisor whether such schemes are suitable for you because some might fall in the high risk-high return category.

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