I have queries regarding the risk measures. A lower standard deviation value indicates lesser volatility from the mean level. So is a fund with lower standard deviation better? What does a beta value indicate?
To assess the risk of a fund, multiple tools are used. Standard deviation is indicative of the volatility in the fund. Hence, a lower standard deviation would imply that the fluctuation in the NAV of a fund have essentially been range bound.
Equity funds will have a higher standard deviation than balanced funds and debt oriented funds will have a still lower standard deviation. For those who cannot stomach volatile returns, a fund with a lower standard deviation would be advisable.
Beta value measures the sensitivity of a fund to the market index. A high beta suggests that historically, the fund/stock has risen more than the markets as well as fallen more than the markets, while vice versa applies for a low beta fund/ stock. For example, if the markets rise by 1 per cent, a fund with a beta of 1.25 is expected to rise by 1.25 per cent. Similarly, if the markets fall 1 per cent, it is expected to drop by 1.25 per cent. A low beta fund would ideally rise less than the index during a bull phase but then it would also fall less than the index during a bear phase.