Learn · Performance
How to read a fund's numbers: CAGR, alpha, beta, Sharpe ratio, drawdowns and expense ratios — so you can compare funds fairly.
Sachin invested ₹1 lakh in a fund in 2018. In 2023 it was worth ₹1.61 lakh. He wanted to know: what was the yearly growth rate? CAGR gives the single annual rate that would have produced this result: 10% per year, compounded. It smooths out the bumpy year-by-year returns into one clean number so you can compare different investments fairly.
Key takeaway: CAGR is the single yearly growth rate that explains total growth — the standard way to compare investments.
Meera invested ₹50,000 in a fund. Three years later it is ₹65,000. Her absolute return is 30% — the total gain as a percentage of the original amount, with no adjustment for time. A fund returning 30% in 1 year is very different from 30% in 10 years, but absolute return doesn't tell you that. Always use CAGR for time-adjusted comparison.
Key takeaway: Absolute return = total % gain with no time factor — useful for short periods, misleading for long-term comparisons.
The Nifty 50 returned 12% last year. Arun's fund returned 16%. The extra 4% — earned purely from the fund manager's stock-picking skill — is the alpha. A consistent positive alpha over 5 years means the manager genuinely adds value beyond what the market offers. Negative alpha means you'd have been better off in an index fund.
Key takeaway: Alpha is the extra return above the benchmark — the fund manager's report card for skill.
When the Nifty 50 falls 10%, Rohan's small-cap fund falls 16%. Its beta is 1.6 — for every 1% market move, the fund moves 1.6%. A beta above 1 means the fund amplifies market swings (more volatile). Beta below 1 means it is more stable than the market. A beta of 1.0 means it moves in lockstep with the index.
Key takeaway: Beta measures market sensitivity — high beta = amplified swings, low beta = more stable than the market.
Two fund managers both earned 14% returns. Manager A took massive risks — huge portfolio swings all year. Manager B achieved the same return with smooth, consistent growth. Manager B's Sharpe Ratio is much higher. Sharpe = (fund return − risk-free return) ÷ standard deviation. It measures how much return you earned per unit of risk. Higher is always better.
Key takeaway: Sharpe Ratio ≥ 1 is good, ≥ 2 is excellent — it tells you if the returns are worth the risk taken.
Fund A returned 12%, 14%, 11%, 13%, 12% over 5 years — smooth ride, low standard deviation of 1.2%. Fund B returned 2%, 30%, −15%, 25%, 8% — same average return of 10%, but a stomach-churning roller coaster with SD of 16%. Standard deviation tells you how bumpy the journey will be, even if the destination is the same.
Key takeaway: Standard deviation measures return volatility — lower SD means smoother, more predictable performance.
In March 2020, Pooja's mid-cap fund was at ₹1,00,000. By April 2020 it had fallen to ₹58,000 — a 42% drop. That 42% fall from the highest point to the lowest before recovery is the maximum drawdown. It tells you the worst pothole on the road, even if the car eventually reached the destination. Critical for investors who might panic and sell at the bottom.
Key takeaway: Max drawdown = the deepest temporary fall — if you can't stomach this number, the fund isn't right for you.
Checking a fund's 5-year CAGR only from 2019–2024 is like judging a cricket player by one innings. Rolling returns check the 5-year CAGR for every possible 5-year period: Jan 2010–Jan 2015, Feb 2010–Feb 2015, Mar 2010–Mar 2015 … and so on. If a fund consistently delivered 12%+ across 200 such rolling windows, it is genuinely reliable — not just lucky on one date.
Key takeaway: Rolling returns reveal consistency — a fund with strong rolling returns across multiple periods is genuinely good.
SEBI requires every mutual fund to declare an official benchmark index — for a large-cap fund it is Nifty 50 or Nifty 100; for a mid-cap fund it is Nifty Midcap 150. The benchmark is the yardstick: if your fund returned 13% and the Nifty 50 returned 14%, the fund underperformed despite absolute gains. Without a benchmark, returns are meaningless.
Key takeaway: The benchmark is the measuring stick — a fund must consistently beat its benchmark to justify its expense ratio.
You invest ₹1 lakh in a fund with 1.5% TER. Every day, 1.5% ÷ 365 = 0.0041% is silently deducted from the fund's NAV to pay the AMC. You never see it leave — but over 20 years, the 1.5% TER costs ₹1.8 lakh on a ₹1 lakh investment compared to a 0.1% index fund. TER is the toll booth on your wealth highway — invisible but real.
Key takeaway: TER is deducted from NAV daily and never shown as a separate charge — lower TER means higher long-term returns.
Karan invested in an equity fund in January and needed money by October — just 9 months later. The fund charges a 1% exit load on redemptions within 12 months. On ₹5 lakh, that is ₹5,000 deducted. Exit loads are designed to discourage short-term trading and protect long-term investors from frequent redemption pressure. After the lock-in period, most funds have zero exit load.
Key takeaway: Exit load is a penalty for leaving early — always check the exit load period before investing.
Two fund managers both beat the Nifty 50 by an average of 3% per year. But Manager A beat it consistently — 3.1%, 2.9%, 3.2%, 2.8%. Manager B's alpha was erratic — 8%, −2%, 7%, −1%. Manager A's Information Ratio is much higher because his excess returns are consistent, not just lucky. It measures the reliability of alpha, not just its size.
Key takeaway: Information Ratio measures how consistently a manager beats the benchmark — high IR means reliable skill, not luck.
Ready to apply these ideas to your own goals? Mahadware can help you invest with a goal-based, risk-aligned plan.
Educational illustrations only; figures and tax rates are examples and may change. Not investment advice. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.