What your fund's information ratio tells you

Two funds may give the same return, but one may have taken far more risk. That’s where SEBI’s new disclosure rule on the information ratio comes in. Investing can sometimes feel complicated, especially with all the numbers and jargon. SEBI, the regulator for mutual funds in India, wants to make it easier for investors to evaluate and compare mutual fund schemes. That’s where the concept of risk-adjusted returns and the information ratio (IR) comes in. Same returns, different risks Imagine you and a friend invest Rs 1,000 each. You choose an investment that generates fixed returns and earn Rs 50. Your friend invests in stocks and also earns Rs 50. Same returns, right? Yes, but there’s a big difference—your money was safe, while your friend took a lot more risk to earn the same amount. Mutual funds work the same way. Two funds may give similar returns, but one may have taken on far more r