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Mutual Fund performance measurement with Beta

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Beta is a popular measure in securities market.

We already heard of high-beta shares in equity investments.

Beta is a measure of an investment’s volatility vis-à-vis the market (or benchmark).

If Beta is less than 1 means that the security will be less volatile than the market.

A beta of greater than 1 implies that the security’s price will be more volatile than the market.

Let us assume that the Beta of DSPBR Eq Fund is 1.16

This means that, within a given period, for every 1 point move of the benchmark (Nifty 500), the scheme value (NAV) moves to 1.16

It can happen on both upside and downside.

So we can say, it is more volatile than the benchmark index.

Got it ?

Is VIX Index something similar?

Yes. VIX itself is an index that measures volatility of the Nifty

We get beta values of shares from websites such as TopStockResearch

Stocks like JPAsscociates, HFCL etc. for example are considered to be High beta stocks because their Beta Value is more than 1.

That means they move up and or down faster than the index to which they belong to fast moving shares

Simiarly, Mutual Fund schemes also have a Beta value.

What beta is preferable?

High beta = more unpredictability

Low beta = more predictability

So it depends on the risk the investor is willing to take.

If an investor is a high risk taker, he would probably prefer high beta scheme.

For instance, for DSP BR Equity Beta is 1.13

For DSP BR Microcap Beta is 0.99

So DSP BR Microcap, for the sake of this measure alone, is less volatile and more predictable compared to Equity Fund

Of course, this single measure cannot be a sufficient for decision making

Getting Mutual Fund Beta Values

Each plan of a Mutual Fund Scheme will have its own beta value.

The official source for this information is the Mutual Fund Fact Sheet.

Websites such as ValueResearchOnline and MorningStar.in provide easy comparision interface.

To determine if an MF is performing better or not, compare with similar funds from the same category over 1-year, 3-year and 5-year periods.

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