Glossary· Benchmark-relative
What is R²?
How much of the fund's movement the benchmark explains, 0–100%.
Near 100% means the fund is essentially tracking the index (expected for an index fund). Below about 70%, the fund is doing its own thing and alpha, beta and Treynor computed against that index are unreliable.
For the formula and the constants behind this figure, see Methodology.
Guides that use R²
7 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 real problem — and where active still earns its fee.
- Index funds and ETFs: low-cost passive investing explainedWhat the Indian evidence says about active large-cap funds, the difference between tracking error and tracking difference, and where indexing stops winning automatically.
- Decoding alpha and beta: manager skill versus market riskBeta is how much market you took; alpha is what you got beyond it; R² tells you whether either number means anything. Read in that order, they catch a closet index fund.
- Treynor and information ratio: advanced tools for comparing fundsOne prices market risk, the other prices the decision to differ from the index. For choosing between active funds in one category, the information ratio is the most relevant number on the page.
- Tracking error and standard deviation in passive fundsOne measures how much a fund moves, the other how much it moves differently from its index — and neither is the number that actually reaches your returns.
- ESG funds: investing with a conscience, or paying for a label?India's rules are stricter than most — six declared strategies and a 65% assured-BRSR-Core requirement. What that does and does not settle about greenwashing.
- 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 rather than the story.
More on benchmark-relative
How the fund behaved against its index. All computed from 36 monthly returns, so a fund needs about three years of history to show any of them.
- Alpha
- Annualized return above what the fund's market exposure alone would predict.
- Beta
- How hard the fund moves when the index moves. 1 = in step.
- Treynor ratio
- Excess return per unit of beta rather than per unit of total volatility.
- Information ratio
- Return above the benchmark, per unit of tracking error.
- Tracking error
- How far the fund's returns typically stray from the benchmark's, annualized.
- Upside capture
- The share of the index's gains the fund captured in months the index rose. 100 = matched it.
- Downside capture
- The share of the index's losses the fund took in months the index fell. Lower is better.