• The Treynor Ratio is a performance metric for mutual funds, measuring returns earned above a risk-free investment per unit of market risk.
• Advantages include risk-adjusted performance evaluation, simplicity, and usefulness for diversified portfolios.
• Disadvantages involve ignoring unsystematic risk, dependence on beta accuracy, and lack of consideration for current market conditions.
• The Treynor Ratio is a valuable tool for informed investment decisions but should not be used in isolation.

• The Sterling Ratio is a risk-adjusted measure of return on an investment that focuses on downside volatility.
• Calculation: (CAGR - Risk-free Rate) / Average of the Largest Annual Losses.
• Advantages: Emphasizes potential for loss, focuses on larger losses, and provides a realistic view of performance by considering a risk-free rate.
• Disadvantages: Heavily relies on historical data and might overemphasize the impact of outliers.
• In practice: the 'Fund A' example with a 10-year CAGR of 15%, risk-free rate of 6%, and five worst drawdowns resulted in a Sterling Ratio of 0.90, indicating a good risk-reward trade-off.
• Empirical evidence from India suggests that funds with higher Sterling Ratios tend to perform better during downturns.
• Important note: Investment decisions should not be solely based on the Sterling Ratio, consider other factors and metrics.

The Sharpe Ratio, named after William Forsyth Sharpe, helps investors understand the return on an investment relative to its risk. It's calculated using a formula involving the return on investment, risk-free rate, and the standard deviation of the investment. The Sharpe ratio provides a universal measure for comparing different mutual funds and assessing if the return justifies the risk taken. However, it has limitations such as assuming a normal distribution of returns, variations in the risk-free rate, and ignoring liquidity risk. We illustrated this with a real-life example and referred to an Indian study showing many funds with Sharpe ratios of less than 1. Despite its limitations, it's a valuable tool for investors.