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Mutual Fund performance measurement with Sharpe Ratio
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Now lets go to the next measure *Sharpe Ratio*
It is a measure of risk-adjusted returns
It is calculated using standard deviation and excess return to determine reward per unit of risk.
The way it is calculated is not important for us.
For DSPBR Eq fund, from the picture above, the sharpe ratio is 0.93
I will explain with an example
Suppose we expect the fund has an expected return of 15% in excess of the risk free rate.
Risk free rate is actually the rate that is guaranteed by the debt assurer
We typically do not know if the asset will indeed have this return until maturity.
Suppose we assess the risk of the asset as 10%.
The risk-free return is constant. Because the debt issuer will tell us this.
Then the Sharpe ratio will be 0.15 / 0.1 = 1.5
It is basically a risk measure
It tells how well the return of an asset compensates the investor for the risk taken
In DSPBR Case, we got it as 0.93
For ICICI Value Discovery fund it is 1.66
The one with a higher Sharpe ratio provides better return for the same risk
Of course, we assume both the schemes have the same benchmark. say Nifty 500
- Understanding Mutual Fund Factsheet
- Evaluating of Mutual Fund Schemes
- Comparing Mutual Fund Schemes
- Mutual Fund performance measurement with CAGR
- Mutual Fund performance measurement with Standard Deviation
- Mutual Fund performance measurement with Sharpe Ratio
- Mutual Fund performance measurement with Beta
- Mutual Fund performance measurement with XIRR