This website is purely ACADEMIC in nature and NOT a stock market recommendation service or a tip provider. No live data or feeds are provided and all information is historic only. Information is provided for ease of understanding for the purpose of learning. Accuracy of definitions etc is not mantained. I am not a SEBI or IRDA registered.

Mutual Fund performance measurement with Sharpe Ratio

Jump to:navigation, search
HomePersonal FinanceMutual FundsEquity

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

Related Topics