Alpha in Mutual Fund simply shows how much more or less the fund has given returns than the benchmark index. Beta refers to the volatility of the fund.
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Mutual Fund Alpha and Beta: If you invest in mutual funds, then this information is very important for you. Because today we are going to give you information about Alpha and Beta. Now you must be wondering what is this Alpha and Beta. This is not an alpha-beta of meths. Here we are talking about alpha and beta of mutual funds. If you choose a fund in a mutual fund, it has five indicators. Like Alpha, Beta, R Squared, Standard Deviation and the fifth is Sharpe Ratio. So today we will know about alpha and beta and by calculating it how you can know the return of the fund.
What is Alpha?
Alpha shows the performance of a fund. Alpha in a mutual fund simply shows how much more or less the fund has given returns than the benchmark index. Let’s understand this with an example. Suppose you have invested in a fund and the benchmark of that fund is 20% and that fund has given 25% return, then it means its alpha ie performance is 5% more. It also means that your fund manager has managed your fund well as the returns are higher than the benchmark.
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Conversely, if the benchmark is 20% and the fund has given 15% returns, then it has given 5% less than its expected returns. So whenever you go to invest, do check that its alpha is high. The more negative the alpha is, the worse the situation will be and the higher it will be, the better the situation. If a mutual fund has a positive alpha of 2%, it means that it has given 2% more returns than the benchmark index.
On the other hand, if the alpha of that fund is showing -2%, then the fund has given negative returns. Positive alpha means its fund manager has done a good job, then by looking at the positive alpha, you can choose the fund and manage your portfolio.
What is Beta?
Beta refers to the volatility of the fund. Beta shows how sensitive a mutual fund is to market movements. Means how high or low it can go. If Beta is negative then volatility is low and if Beta is positive then volatility is high. We consider one as the benchmark of beta in mutual funds. Suppose its benchmark is more than one then it is more volatile and if it is less than one then it is less volatile, the risk is less. Whenever the validity is high, the chances of loss increase, but the chances of return also increase.
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If you want to invest in any AMC, first check its beta value. Beta value should never exceed one. That is, it should be in minus or less than one. So if beta is less than one then you can take it. Because there your risk is reduced. You definitely get a little less return, but there is no risk.
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