SEBI mandates mutual funds to disclose information ratio for risk-adjusted returns | Explained
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
The Information Ratio will be applicable only to equity mutual fund schemes. SEBI has instructed that the Information Ratio of a scheme should be displayed on the mutual fund’s website, along with other performance data, on a daily basis.
The Information Ratio is calculated using the following formula:
(Portfolio Return—Benchmark Return) / Standard Deviation of Excess Return
Here:
—Excess return is the difference between the portfolio’s return and the benchmark return.
—The benchmark is the Tier 1 benchmark currently used by equity mutual funds.
—Volatility, or standard deviation, is calculated based on the scheme’s daily return values.
—The Daily Portfolio Return is calculated using an arithmetic method.
SEBI emphasised that the Information Ratio is an important measure of how well a fund performs in relation to its risk. By including the standard deviation (a measure of volatility) in the calculation, the IR captures both the returns and the consistency of performance. It is also used to assess a portfolio manager’s ability to generate excess returns compared to the benchmark while managing risk.
In addition, SEBI has instructed the Association of Mutual Funds in India (AMFI) to ensure that these disclosures are made available on their website in a format that is comparable, downloadable, and machine-readable.
The move aims to help investors make more informed decisions by considering both returns and the associated risks of equity mutual funds.
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