Question

Mutual Fund metrics like Alpha, beta and standard deviation. What do they tell us about the fund. ? Pick few funds or any funds you may be familiar with and discuss the metrics and implications

Answer 1

Alpha of a mutual fund means that the excess rate of return which has been generated by the mutual fund over the market rate of return, and it is the return which is helping the mutual fund to command a premium over its peers.

Beta of a mutual fund means that the volatility which is associated with the stocks of the mutual fund, and for each unit of movement in the market, how much movement, the mutual fund is reflecting. High beta of mutual fund means the high volatility of mutual fund.

Standard deviation of mutual fund means deviations of Return of mutual fund over years from the mean and it is used to calculate that how much stability, the mutual fund is having in terms of earnings.

In terms of mutual fund which I am familiar with, DSP blackrock mutual fund which is generally a small cap mutual fund and it is generating an Alpha over market for quite a long period of time and the Beta is relatively high because there is a high level of exposure into small caps, and standard deviation have also been very high because the fluctuations in small cap shares is relatively higher than those of blue chip companies.