LEARNING CENTRE - THE INFORMATION RATIO

Mutual fund performance cannot be gauged just by the returns it earns and should be understood by how it has fared compared to its benchmark

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As a mutual fund investor, you are often unsure of how to interpret the performance of the fund you have invested in. Fund performance is often indicated over different time frames such as three months, one year, five years, since the inception of the fund and so on. Performance could be compared to peers, benchmarks, or even a no-risk instrument such as the interest rate one could earn from a bank savings account. With so much to go into evaluating the performance of the fund in which you have invested, there is one indicator that could help you understand the way your investment has fared— the Information Ratio (IR).