When choosing a mutual fund, investors often see the possibilities of returns that the fund managers fixed the value of money in how efficiently (the ability to increase the money maximum). It is a main tool or criteria that evaluates it. This can be called a useful tool that assesses the ability and skill of the fund manager to give more returns than the benchmark returns, keeping in mind the risk associated with the market. Under Nivesh Ka Sahi Kadam, let’s understand what is the information ratio or information ratio. What are its main features and how can it give you a new direction for smart investment.
What is information ratio?
The information ratio mainly assesses the ability of the fund manager to be able to give more returns than the benchmark. Also, the fund accurately assesses the continuity and efficiency of the manager. It also includes the risk of risk. The formula mentioned below is used for its calculation:
Information Ratio (IR) = (Portfolio Return-Benchmark Return) / Regular fluctuations associated with additional returns
● Portfolio Return: It is estimated from funds from funds in a fixed time.
● Benchmark Return: Annual return from the index related funds (eg, NIFTY 50 or BSE Sensex).
● Regular fluctuations with additional returns: It is assessed how different (more) it can be from the benchmark returns of the fund. It also shows the possibility of possible risk in exchange for this additional returns.
The high -rate fund manager of IR confirms the risk managed properly. Also, there is a sign of better performance than continuous benchmark returns. It also shows better management. The IR makes an important tool for the evaluation of the active mutual funds.
What things indicate the information ratio?
IR (information ratio) gives important information on many levels about the performance of fund manager:
1. Comparison of equal funds: IR allows investors to compare funds with uniform investment strategies. Funds whose IRs are better or high are considered to minimize possible risk. It is considered a better investment option for investors.
2. Focus on returns that better adjust the risk: Compared to flexible returns, the IR account also takes care of the risk of rising returns. This makes it easier for investors to identify funds that perform better and perform better.
3. Focus on continuity: Having a continuous high IR shows a fund manager’s ability to perform stable even amidst the ups and downs of the market. This increases the trust of the investor in a long time fixed strategy.
How can investors use information ratio
IR is an important tool for selecting any fund and assessing performance. Learn how to implement it here:
● Compare funds: Funds with high IR (high information ratio) should be preferred while choosing between funds with similar objectives. Such funds provide good returns by better adjusting the risk.
● Keep an eye on the goals fixed for a long time: Along with meeting your economic goals, attention should be paid to the high IR funds that have consistency in performance.
Information ratio limits
However, IR gets important information, but it also has some limitations. Investors should also keep in mind them:
1. Focus on benchmark performance: IR assesses the benchmark performance of returns on a fund. It does not give accurate information about how much this return will be. If the return of a high IR fund is also bad if the benchmark performance is bad, then it can give less returns.
2. Benchmark dependence: The benchmark, a factor affecting the IR on a large scale, is selected. If the right benchmark is not chosen, the ratio is not accurate. This makes it complicated to compare the fund.
3. In the context of the market: The IR does not pay attention to the display difference between the Tejria and the Mandaria (bull and beer) in the market. Therefore, high IR funds do not remain in the same position during the recession during the faster in the market.
4. External factor: IR does not take care of external influences such as changes in the rules of regulation or the effect of sudden events. These are factors that can affect the performance of the fund manager on a large scale.
The information ratio is a useful tool. Investors can assess the efficiency of their fund manager in fulfilling the purpose of giving better returns by minimizing the risk. Takes into account the target of limiting stability in investment and limiting risk. IR helps you proceed with accurate options with correct information in your mutual fund investment trip. Under Mutual Funds Sahi Hai (Mutual Fund is correct), we believe that it is important for you to know such an investment tool. Take every step with confidence to meet your economic goals with Nivesh Ka Sahi Kadam.
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Disclaimer: Mutual fund investment is subject to market risk. Read all the documents related to the scheme carefully before taking the investment decision. The performance of the past is not a guarantee of the same results in future.