Sharpe ratios: Invesco India has 4 of the top 10

The number

Across 264 diversified equity funds, the median three-year Sharpe ratio on 1 October 2026 was 0.35. Seventy-three funds were at 0.5 or above, none reached 1.0, and 10 were below zero.

The Sharpe ratio here is the fund's annualised three-year return minus a 6.5% risk-free rate, divided by the annualised volatility of its daily returns over the same three years. Bandhan Small Cap, for example: (23.17% - 6.5%) / 17.52% = 0.95. The funds are Direct plan, Growth option; sectoral and thematic funds are left out. Our July post covered the same ground three months ago.

By category

Contra funds (3) are left out for size; their median was 0.42.

The order largely follows the three-year return rather than the risk. Median volatility differs by about 3 points between the top and bottom rows, while median returns differ by 6.5.

The top ten

Three things stand out:

• One fund house has four of the ten. Invesco India's mid cap, large & mid cap, small cap and focused funds are all in the list.
• Small and mid cap funds fill seven of the ten places. The others are a large & mid cap fund, a focused fund and DSP Value, which is there for a different reason.
• DSP Value got there on low risk. Its 15.37% return ranks 53rd of 264, but its volatility of 11.10% and worst three-year fall of 13.7% are the lowest of the ten. The others had worst falls of 18.6% to 27.1%.

What a high Sharpe ratio costs

The funds at the top earned more than the risk-free rate for each unit of volatility, but the nine other than DSP Value did so with volatility of 16% to 19% and worst falls of 19% to 27% over the three years. The ratio compares return to volatility; it does not say that a 25% fall was comfortable to sit through.

At the other end, 10 of the 264 funds had a negative Sharpe ratio, meaning their three-year return was below 6.5%. Among large cap funds, 3 of 30 were negative and the best was 0.42.

What this does not tell you

Three years is one stretch of the market. The ratio reflects this three-year window; a different window reorders the table.

It treats ups and downs alike. A fund whose volatility came mostly from rising days is penalised the same as one that fell.

The risk-free rate is a choice. We use 6.5%; a different rate changes every figure but not the order within a window.

It is not a ranking of what to hold. Funds sit in different categories for a reason, and a large cap fund and a small cap fund do different jobs in a portfolio.

Where to go from here

The Sortino screen and the high-Sharpe small-cap screen apply these measures to the whole universe. The guide to risk-adjusted returns explains the arithmetic, and our equity category scorecard gives the plain returns by category.