Sharpe Ratio uses Standard Deviation of Mutual Fund and after taking into account the risk taken by the fund denotes the returns of the fund. It was invented by Nobel laureate William Forsyth Sharpe of America.

 

Meaning of Sharpe Ratio

Sharpe Ratio helps to measure the performance of a Mutual Fund after taking into account risk per unit of the Fund and It takes help of Standard Deviation of the Mutual Fund for this.It denotes how much return a Mutual Fund has generated for the risk taken so it can be inferred that more the Sharpe Ratio is better it is for Mutual Fund.


Use for investment

It can be used to compare different Mutual Funds while making a selection for investment. Care needs to be taken that Sharpe Ratio of the same category of Mutual Fund is taken for comparison.
a fund having higher Sharpe Ratio is giving higher risk-adjusted returns.