Glossary· Risk
What is Maximum drawdown?
Also known as Max DD
The largest peak-to-trough fall the fund has ever had, over its full history.
The worst it got, measured from a high-water mark to the low that followed. Unlike the other risk figures this one is all-time, not trailing 3Y — a fund launched after 2020 has never met a real crash, and its shallow drawdown says more about its age than its safety.
For the formula and the constants behind this figure, see Methodology.
Guides that use Maximum drawdown
24 guides put this term to work.
- Active vs passive: can a human beat the market?The accounting identity that starts the argument, what SPIVA India shows about large caps, why persistence is the problem — and where active earns its fee.
- Can you lose money in mutual funds? Understanding market riskYes — but temporary, permanent and self-inflicted losses are three different things, and the largest source of realised loss is behavioural rather than market.
- Demystifying the riskometer: how to read SEBI’s risk levelsPortfolio-derived, updated monthly and comparable across fund houses — useful for spotting mismatches and changes, far too coarse to pick between equity funds.
- Flexi cap vs multi cap: which strategy offers better flexibility?One is obliged to hold small caps; the other is free not to. The 2020 rule change that created the split, and why it affects how you read an older track record.
- Hybrid and balanced advantage funds: the ultimate stress-free ride?Hybrids live where asset allocation meets the 65% tax line. How a BAF really works, what internal rebalancing is worth, and why net equity is what matters.
- Index funds and ETFs: low-cost passive investing explainedWhat the Indian evidence says about active large-cap funds, tracking error versus tracking difference, and where indexing stops winning automatically.
- Sectoral and thematic funds: high risk, high reward — or just hype?The launch cycle is a coincident indicator of the peak, not a signal. Why concentration is the product, and the conditions under which one is defensible.
- The art of asset allocation: it decides more than fund selection ever willHow much sits in equity matters more than which equity fund. Setting the split, rebalancing on bands rather than hunches, and not handing the gain back in tax.
- Goal-based investing: mapping dreams to specific bucketsA goal is an amount, a date and a priority — and the date decides most of the allocation. Why buckets work, and the glide path that avoids a mid-drawdown end.
- Handling underperformance: when to stay and when to exitSeparating what changed about the fund from what changed about the market: mandate drift, manager exits, and the review habit that survives a bad quarter.
- Decoding alpha and beta: manager skill versus market riskBeta is how much market you took; alpha is what you got beyond it; R² says whether either number means anything. Read in order, they catch a closet indexer.
- Sharpe and Sortino: measuring risk-adjusted returnsVolatility, Sharpe, Sortino and maximum drawdown measure four different things, and only one of them predicts whether you will still be holding in year three.
- Factor investing and smart beta: beyond market-cap weightingA disclosed, rules-based tilt at a fraction of active cost — and active risk by another name, with long underperformance that is the reason the premium exists.
- The psychology of a market crash: behavioural finance that survives contactLoss aversion, herding and action bias are not character flaws — they are default settings. The pre-commitments that work when in-the-moment judgement fails.
- Micro-cap funds: the riskiest edge of Indian equitySEBI has no micro-cap category — you are buying the undefined tail below the small-cap floor, where the premium is for illiquidity and fragility, not swings.
- Infrastructure and PSU funds: riding the government capex cycleA leveraged bet on capex and policy, with a specific trap: cyclicals look cheapest exactly when earnings have peaked, which is also when the schemes launch.
- Banking and financial services funds: doubling a bet you already holdFinancials are already the largest sector in every diversified portfolio. Lenders book revenue years before they discover its cost — hence the dangerous cycle.
- Debt and gold as shock absorbers: hedging an equity portfolioBallast does not raise returns — it lowers the worst year and gives you something to sell that has not fallen. Why credit-risk debt is not a hedge.
- Sequence-of-returns risk: why the order of returns decides retirementReal Indian market history: the same fund, the same 5% withdrawal — ₹24.8 lakh left if you retired into the 2008 crash, ₹2.07 crore if you retired two years on.
- Loss aversion: why a fall hurts twice as much as a rise helpsFive expensive behaviours it produces, and why knowing about the bias does not switch it off — the defences that work are structural, not emotional.
- How to read an index P/E ratioConsolidated trailing-twelve-month and free-float weighted — and why the absolute number means nothing until you know what it has meant before.
- Is the market expensive? Valuation without market timingValuation predicts ten-year returns and not next year's. Why rebalancing and timing look identical on the same chart, and when a reading should change anything.
- Anatomy of a legendary fund run — and why it endedThe five phases every great run follows, why most investors arrive at phase four, and how to separate skill from a style tailwind using numbers, not the story.
- AI and algorithms in fund management: hype and realityInside Indian AMCs it does operations and compliance, not stock picking. Why predictive advantage is structurally hard, and what SEBI now requires.
More on risk
How rough the ride was — the half of the story a return number hides.
- Standard deviation
- How much daily returns scatter around their average, annualized. Trailing 3 years.
- Sharpe ratio
- Return above the risk-free rate, per unit of total volatility.
- Sortino ratio
- Like Sharpe, but only downside moves count as risk.
- Riskometer
- A six-step risk label from Low to Very High, in SEBI's format.