Why in the news
An analysis using the Information Ratio (IR) checked how equity mutual funds performed against benchmarks after adjusting for risk over 2020-2025.
Key facts
- IR formula: portfolio return minus benchmark return, divided by the standard deviation of the excess returns; higher means steadier outperformance.
- Five-year result: 62 of 208 active equity schemes showed a positive IR (sectoral and thematic funds excluded).
- Smallcap: weakest; only 3 of 21 schemes beat the benchmark.
- Largecap and midcap: under 20% of schemes had positive five-year IR.
- Flexicap and multicap: better, especially over 1 and 3 years.
By time frame
| Period | Finding |
|---|
| 1 year | Most schemes beat benchmarks, except largecap funds |
| 3 years | Majority of largecap and multicap schemes beat benchmarks |
| 5 years | Under 20% of largecap and midcap schemes had positive IR |
Best and worst funds
| Category | Best (IR) | Worst (IR) |
|---|
| Largecap | Nippon India Largecap (0.51) | Axis Bluechip (-1.12) |
| Midcap | Motilal Oswal Midcap (0.19) | DSP Midcap (-1.37) |
| Smallcap | Quant Smallcap (0.83) | ABSL Smallcap (-0.68) |
Way forward for investors
- A high IR reflects stock-picking skill, timely sector shifts, good upside capture and downside protection.
- Advisers suggest also checking Sharpe ratio, alpha and beta across market cycles.
Exam angle
- IR measures risk-adjusted performance against a benchmark.
- Related terms: Sharpe ratio, alpha, beta, standard deviation.