What the Sharpe ratio tells you
Raw returns can flatter a fund that simply took big risks. The Sharpe ratio fixes this by dividing excess return (return above a safe rate) by total volatility. It rewards funds that earned their returns smoothly.
How to read it
- Higher is better. A fund with Sharpe 1.0 earned more reward per unit of risk than one at 0.6.
- Always compare within the same category and period — Sharpe across asset classes is apples-to-oranges.
- It penalises all volatility, including upside swings; for downside-only risk see the Sortino ratio.
How FindMF computes it
We resample each fund's NAV (from AMFI data) to month-end and take monthly returns over completed months only. We subtract a monthly risk-free rate (7% annualised G-Sec, or 0.07/12 per month), divide the mean excess return by the standard deviation of monthly returns, then annualise by multiplying by sqrt(12). We require at least 12 months of history; below that, Sharpe is suppressed rather than computed on thin data. We earn no commission — see methodology.