1. Why Returns Alone Not Enough
| Fund A | Fund B | |
|---|---|---|
| 5-Year Return | 15% | 15% |
| Std Deviation | 8% (stable) | 28% (wild swings) |
| Max Drawdown | -12% | -45% |
| Experience | Smooth ride ✓ | Panic zone ✗ |
| Verdict | Better quality! | Same return, more pain |
2. Sharpe Ratio — ⭐ Gold Standard
Risk-Free Rate = India 10-yr Govt Bond (~7%)
Example: Fund 15%, Risk-free 7%, Std Dev 12% → Sharpe = (15-7)÷12 = 0.67
| Sharpe Value | Interpretation |
|---|---|
| < 0.5 | Poor — Risk not worth it |
| 0.5 – 1.0 | Acceptable |
| 1.0 – 1.5 | Good ✓ |
| 1.5+ | Excellent! ✓✓ |
Same category funds-ல மட்டும் compare பண்ணு! Small Cap Sharpe vs Large Cap Sharpe = invalid comparison.
3. Alpha — Fund Manager Skill
| Scenario | Alpha | Verdict |
|---|---|---|
| Fund 16%, Nifty 50 12% | +4% | Manager adds value! |
| Fund 10%, Nifty 50 12% | -2% | Index fund better! |
| Fund 12%, Nifty 50 12% | 0% | Go with Index! |
Consistent positive alpha for 3-5 years = real manager skill. One year positive = could be luck!
4. Beta — Market Sensitivity
Beta = How fund moves relative to benchmark. Benchmark Beta = 1.0
| Beta | Meaning | Best For |
|---|---|---|
| < 0.8 | Less volatile than market | Conservative investors |
| 1.0 | Moves with market | Index fund investors |
| 1.0–1.3 | Slightly more volatile | Moderate risk |
| > 1.5 | Amplified moves | Aggressive, long-term only |
5. Maximum Drawdown
Peak-ல இருந்து trough-வரை maximum fall. ₹100 → ₹180 → ₹108 = -40% Max Drawdown.
| Category | Acceptable | Red Flag |
|---|---|---|
| Large Cap / Index | < 25% | > 35% |
| Flexi Cap | < 35% | > 45% |
| Mid Cap | < 40% | > 50% |
| Small Cap | < 45% | > 55% |
6. Rolling Returns — Consistency Check
Every possible 3-year period-ல returns check. 70%+ periods beat benchmark = consistent performer!
5/6 periods beat = Consistent. 2/6 periods beat = Lucky in 2 years, not skilled.
Rolling returns tell truth that point-to-point returns hide!
7. Fund Comparison — Apply All Metrics
| Metric | Fund A | Fund B | Winner |
|---|---|---|---|
| 5-Year Return | 13% | 15% | B (misleading!) |
| Sharpe Ratio | 1.2 | 0.9 | A ✓ |
| Alpha (5yr) | +2% | +4% | B |
| Beta | 0.85 | 1.15 | A ✓ |
| Max Drawdown | -22% | -38% | A ✓ |
| Rolling (3yr) | 5/6 periods | 3/6 periods | A ✓ |
| VERDICT | BEST CHOICE ✓ | High risk | Fund A! |
8. Practical Checklist
- ⭐ Sharpe Ratio: 1.0+ good, 1.5+ excellent. Same category only
- α Alpha: Positive consistently (3-5 years)
- β Beta: Match your risk preference
- 📉 Max Drawdown: Below category average
- 📈 Rolling Returns: 70%+ periods beat benchmark
9. Where to Find Data
- 🌐 Value Research Online (valueresearchonline.com) — Best free resource
- 📊 Morningstar India — Advanced analytics
- 🏛️ AMFI Website — Official fund data
- 🤝 MFD Consultation — Expert interpretation FREE
10. Beginners: Core 3 Metrics
Don't overcomplicate! Master these 3 first:
1. Sharpe Ratio (1.0+) · 2. Rolling Returns (70%+) · 3. Max Drawdown (< category avg)
These 3 give 80% of the insight needed!
Value Research Online → Fund name → Risk & Return tab → All metrics available. Free!
11. Video Watch பண்ணுங்க!
Sharpe Ratio, Alpha, Beta, Max Drawdown, Rolling Returns — complete Tamil guide. Day 18 of 25.