Here's how you can read different mutual fund ratios when picking a fund

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measures a funds risk adjusted returns and shows how much risk a fund manager takes to deliver a return. A higher sharpe ratio means a fund manager is able to deliver better risk-adjust return. But compare these ratios with other funds in the same category to ensure the comparison is like-to-like.

Fund manager expertise is another critical factor; consider the manager’s background, including the number of years in the industry and previous performance. Longer manager tenure indicates stability and consistent strategy. The promoter background is also essential.

Understanding the reputation and history of the fund’s promoter can provide additional confidence, especially if the fund house has a strong track record of managing funds effectively. To mitigate risks associated with fund selection, investors should diversify their portfolios by investing in multiple funds across various asset classes, and consider geographical and sector diversification to spread risk further. This strategy helps spread risk and can lead to more stable returns over time.

For example, diversifying across equity, debt, and hybrid funds can balance risk and return. The information ratio, recently introduced by the Securities and Exchange Board of India (Sebi), assesses a fund’s performance relative to a benchmark while considering the consistency of that performance, with a higher ratio suggesting consistent outperformance. The information ratio measures and compares the active return of an investment compared to a benchmark index relative to the volatility of the active return.