What is alpha in mutual funds ?
Hello friends lets understand very important topic for Mutual fund investors must understand this What is alpha in mutual funds ? Alpha is a metric used in mutual fund analysis to measure a fund's ability to generate returns that are better than its benchmark index. It's calculated using the Capital Asset Pricing Model (CAPM) formula, which is: Alpha (Mutual fund return -- risk free return (Rf)) ((Benchmark return -- risk free return (Rf)) beta) The baseline value for alpha is 0, which means the fund earns the same returns as the index. An alpha above 0 indicates that the fund outperforms the index, while an alpha below 0 suggests that the fund underperforms Alpha is important because it can help investors compare funds to identify those that have consistently outperformed their benchmarks while maintaining a level of volatility that aligns with their risk tolerance. It can also help investors understand the risk-return profiles of different funds so they can choose