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Run the numbers, then do qualitative checks
Business Standard|January 25, 2025
The Securities and Exchange Board of India (Sebi) recently issued a circular directing mutual fund houses to disclose the information ratio, a measure of risk-adjusted return, for all equity-oriented schemes.
- SANJAY KUMAR SINGH & KARTHIK JEROME

The objective, according to Sebi, is to offer a more comprehensive measure of a scheme's performance.

Let us turn to the key measures investors should use to evaluate performance.

Trailing return

This is the most commonly used performance metric. "It is easy to understand and is commonly available. It tells you that if a fund has not beaten its benchmark over a sufficiently long horizon, you should not be invested in it," says Deepesh Raghaw, a Sebi-registered investment adviser.

This metric, however, suffers from start and endpoint bias. If the market was at a high at the start and at a low at the end of the period, trailing returns will appear poor. "It also doesn't take into account volatility," says Kaustubh Belapurkar, director-manager research, Morningstar Investment Research India.

Rolling returns

Rolling returns address the bias inherent in trailing returns by calculating returns over multiple periods. A fund's three- or five-year return rolled daily could be calculated over 10 years and compared against similar figures for its benchmark.

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