How To Analyse Mutual Fund Risks

1. How To Analyse Mutual Fund Risks? As we all know, investments are very important for our life because they give us financial freedom and also help in achieving the goals, but do not invest your money without any knowledge. There are many assets in which you can invest your money to get higher returns on your savings, for example, real estate, commodities, government bonds, futures, options, stocks, and mutual funds. If we talk about real estate and commodities then they are safer than stocks, futures, and mutual funds but they do not give handsome returns on your investment but stocks and futures are very risky that’s why you can invest your money in mutual funds they will give you handsome returns on your investments. When you invest your money in mutual funds it is very important to analyse the risk on your mutual funds portfolio. If you are facing a problem in analysing the risk on your mutual fund portfolio then you are at the right place. In this article, we are going to talk about the steps by following which you can analyse the risk on your portfolio such as mutual fund investment, stock investment and others.. Here Is The List Of The Tips By Which You Can Analyse Mutual Fund Risks: 1. Standard deviation: Standard deviation is also one of the most important things which you should use while measuring the risk on your mutual fund portfolio. It measures the abnormality of data from the mean position. Usually standard deviation is applied to the yearly rate of return and it tells us about the volatility of the mutual fund. If you invest your money in the volatile mutual fund then it can give you a higher return as compared to other mutual funds but the risk is also very high in this mutual fund that’s why do not invest your money in those mutual funds whose value of deviation is high.

2. 2. Sharpe Ratio: This ratio is founded by nobel laureate william sharpe, with the help of this ratio you can measure risk on your investments. If you want to calculate the sharpe ratio then you should subtract the risk-free rate of return from the rate of return for an investment and dividing the numerator by the investment’s standard deviation of its return, the answer tells you that the returns that you get on your investments is due to wise investment decision or it is because of the risk which you take at the time of the investment. The greater sharpe ratio tells you that your investment decision is perfect. 3. Sortino Ratio: As we discussed above, sharpe ratio uses the volatility to give you answer in the form of standard deviation, but sortino ratio uses only downside standard ratio to calculate their results. If you want to calculate then the formula of the sortino ratio is similar to the sharpe ratio and subtract the risk free returns from the actual fund returns and divide the required answer with the downside deviation. You should invest your money in that asset whose value of sortino ratio is high because it shows that the chances of lower deviation in the mutual fund scheme is low.