Standard Deviation in Mutual Fund

Standard Deviation In Mutual Fund

Standard deviation in mutual funds tells us how much a fund’s return can vary from its average return. It’s like a tool that helps investors understand the risk involved with a particular mutual fund. In simple terms, it helps investors figure out how stable or unstable the returns can be, aiding them in deciding where to invest their money.


What Is Standard Deviation In Mutual Funds?

The standard deviation in mutual funds represents the fluctuation in the returns of a mutual fund from its average return. It provides insights into the fund’s volatility, indicating the level of risk involved. A higher standard deviation denotes more fluctuation and, consequently, higher risk.

Let’s take a mutual fund that usually gives a return of 10%. If the standard deviation is noted to be 5%, this means the actual returns of the fund can typically vary between 5% and 15%. So, if an investor is looking at this mutual fund, they can understand that the returns they might get could be as low as 5% or as high as 15%. This information helps investors decide if this fund fits well with the level of risk they are comfortable with and whether it meets their investment objectives.

How To Calculate Standard Deviation I