A CAGR tells you where a fund ended up. It says nothing about what it put you through on the way, and the way is what determines whether you were still holding at the end.
Four numbers on this site try to describe the journey. They measure genuinely different things, and the one most people ignore is the one that matters most.
Volatility
The annualised standard deviation of the fund’s daily returns — on this site, over a trailing three years. It measures dispersion: how far, and how often, the daily result strayed from its own average.
Its blind spot is that it is symmetric. A fund that jumps 4% in a day is recorded as exactly as “risky” as one that falls 4%. Nobody experiences those two days as equivalent, which is the whole reason the next two numbers exist.
Volatility is also not the same thing as risk. A fund can be perfectly placid while quietly concentrating into one sector. Placid is not safe; it is only placid so far.
Sharpe
Sharpe is return above the risk-free rate, divided by total volatility: excess return per unit of wobble. This site uses a risk-free rate of 6.5%.
It answers “was the bumpiness worth it?” A fund returning 14% with high volatility and one returning 11% with low volatility can easily have the same Sharpe, meaning both converted risk into return at the same efficiency.
Two cautions. Sharpe is meaningless in isolation — it is only interpretable against the fund’s peer group, because different categories operate at different natural volatilities. And it inherits the symmetric blind spot: it penalises a fund for its good days.
Sortino
Sortino fixes exactly that. Same numerator, but the denominator counts only downside deviation. Upside swings are not treated as a defect.
Where a fund’s Sortino is much higher than its Sharpe, its volatility has been mostly upward — its bad days were fewer or shallower than its good ones. Where the two are close, the distribution is roughly symmetric.
Maximum drawdown
The largest peak-to-trough fall over the fund’s full history: how far it went down from its highest point before making a new high.
Of the four, this is the one that predicts behaviour. Volatility and Sharpe are statistics; drawdown is an experience. A fund with a 55% maximum drawdown is telling you that at some point, someone holding it watched more than half their money disappear — and the honest question to ask yourself is not whether that was mathematically acceptable but whether you would have sold.
Most realised investment losses are not caused by bad funds. They are caused by good funds sold at the bottom of a drawdown the investor had not expected.
Note that on this site the drawdown figure is all-time, while volatility, Sharpe and Sortino are trailing three-year. They deliberately answer different questions, and the fund page labels which is which.
The riskometer is not one of these
SEBI’s riskometer is a six-tier label — Low through Very High — that the fund house computes from the portfolio’s own characteristics and updates monthly. It is a forward-looking, holdings-based classification.
The four numbers above are backward-looking and NAV-based. They can disagree with the riskometer, and when they do, neither is malfunctioning. A newly launched fund holding small caps will show a Very High riskometer and almost no measured volatility, because it has not lived through anything yet.
What all four share
They are all computed from history, and history had one particular sequence of events in it.
- A short record proves nothing. A fund launched in 2021 has never met a real bear market. Its calm statistics describe the market it happened to exist in.
- The window changes the answer. Include March 2020 or exclude it and every one of these numbers moves.
- They describe the fund, not your holding. What you actually earned depends on when you bought, which is XIRR’s job.
Every formula, constant and window used here is written out on the methodology page, and each term has a one-paragraph definition in the glossary.
Key takeaway
Volatility measures dispersion, Sharpe prices it, Sortino prices only the downside, and maximum drawdown is the one that predicts whether you will still be holding. All four are backward-looking and window-dependent, and a short track record proves nothing. Read them inside a peer group, and treat the drawdown figure as a question about you rather than about the fund.
More in Module 5 — Advanced metrics, taxation and wealth architecting
Mutual fund taxation decoded: short-term vs long-term capital gains
Equity, debt, hybrid and ELSS are taxed under different rules, and the rules changed twice in three years. What applies now, and to which of your units.
Decoding alpha and beta: manager skill versus market risk
Beta 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.
Absolute, CAGR, XIRR: which return are you looking at?
Three numbers that all answer “how did it do?” and disagree with each other. Which one your statement shows, which one this site shows, and when each is the honest one.
Rolling returns, and the start date that flatters a fund
A trailing return runs from one day to one day, and moving either changes it. What sliding that window across the whole history shows that a single figure cannot.
Treynor and information ratio: advanced tools for comparing funds
One 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 funds
One 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.
What is portfolio turnover ratio? Decoding a fund’s trading activity
How much trading it took to produce the returns, the invisible costs that come with it, and why the number is a consistency check rather than a verdict.
Credit risk and yield-to-maturity in debt funds
A high YTM is a description of the risk taken, not a forecast of the return earned. How to read it beside the rating profile, and what a credit event permanently does.
Factor investing and smart beta: beyond market-cap weighting
A disclosed, rules-based tilt at a fraction of active cost — and active risk by another name, with long stretches of underperformance that are the reason the premium exists.
Estate planning for mutual fund investors: transmission and legalities
Nomination, a will and joint holding — what each one actually does, what transmission involves without them, and why inheriting does not reset the capital-gains clock.
The psychology of a market crash: behavioural finance that survives contact
Loss aversion, herding and action bias are not character flaws — they are the default settings. The pre-commitments that work, because judgement in the moment does not.