How much you were paid for the swings you sat through. Higher is better; roughly, above 1 is good and below 0 means a fixed deposit would have done better. Computed with a 6.5% risk-free rate, so it is only comparable to other Sharpe figures on this site.
The arithmetic: take the fund's annualized return over the trailing three years, subtract the risk-free rate, and divide by its annualized standard deviation over the same window. A fund that returned 18% with 12% volatility scores (18 − 6.5) / 12 ≈ 0.96; one that returned 22% with 24% volatility scores 0.65 — more money, but paid for with twice the turbulence. That is the whole point of the ratio: it lets a conservative hybrid fund and an aggressive small-cap fund be read on one scale.
Three things it does not tell you. First, it is symmetric — a month where the fund jumped 8% raises its volatility exactly as much as a month where it fell 8%, so a fund that mostly surprises upward is penalized for it (Sortino fixes this). Second, the risk-free rate is a constant, so every Sharpe on this site moves together when it is changed; do not compare our figure with a factsheet that used a different rate or window. Third, it is a trailing 3-year figure: a fund launched in 2023 has never met a real drawdown, and a strong Sharpe over a calm stretch says less than the same number earned through 2020.
How we use it: Sharpe is one of the risk-adjusted inputs to the star rating, weighted alongside Sortino and drawdown rather than on its own, so a single good year cannot carry a fund into five stars. On a fund page, read it beside the category median — a Sharpe of 0.8 is ordinary for a large-cap fund and excellent for a credit-risk fund.
For the formula and the constants behind this figure, see Methodology.
Guides that use Sharpe ratio
4 guides put this term to work.
- How to read a mutual fund factsheet like a proRead it backwards: mandate and benchmark, then holdings and concentration, then cost, then risk — and only then returns. Four minutes, in the right order.
- 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.
- 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 a category, the second matters most.
- Consumption and FMCG funds: the defensive play that isn't always defensiveThe steadiest earnings in the market, already priced as such — plus a rural and input-cost macro exposure most buyers of a 'defensive' fund never notice.
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.
- Maximum drawdown
- The largest peak-to-trough fall the fund has ever had, over its full history.
- 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.