Jensen’s Alpha has proven to be a useful metric for evaluating the risk-adjusted performance of mutual funds. Although it has its limitations, investors can use it in conjunction with other performance measures to make informed decisions about their investments. In the context of Indian mutual funds, empirical evidence supports the notion that skilled fund managers can deliver excess returns, as evidenced by positive Jensen’s Alphas.

For investors seeking to assess the risk and return trade-off of multiple mutual funds, it may be useful to utilize a metric that enables comparison. The Sharpe Ratio, created by Nobel laureate William F. Sharpe, is one such metric. This article will outline the Sharpe Ratio, its calculation method, and its relevance in evaluating mutual funds.