Top funds with low probability of steep losses

With the current market volatility, it is very significant for a mutual fund investor to pick right mutual fund schemes from the range of schemes available in the market. To tackle with the market volatility, it is important to look into the risks involved in the investment of particular scheme. In the current volatile market, the downside risk is the main concern for the investor who want to protect their returns.

Analysing historical returns is good practice while reviewing the overall fund but in the current situation historical returns are not enough to arrive at an investment decision. Investors always seek to cap the loses to maximise returns, where historical returns seems to be insufficient. To lower the probability of losses, investors can use the Sortino ratio as a tool as it is capable of providing a better picture in the current volatile market. Sortino ratio is a statistical tool which considers the performance of the fund relative to the downside deviation.

Sortino ratio is calculated by subtracting the risk-free returns from the portfolio’s returns which is further divided by the downside deviation. With this, we can observe that large Sortino ratio suggests a lower probability of losses as it considers the negative volatility associated with the investment. So we have analysed 138 schemes among the equity-large cap, equity-mid cap and equity small-cap categories which have turned red in the last three months and are incurring losses. We analysed the Sortino ratios for the same to arrive at the schemes which have lower possibility of losses in the coming days. The method of using Sortino ratio as a risk measure is the most useful tool for conservative investors who usually are more concerned about the downside risks.

According to our data analysis, we have segregated categories-wise schemes which have higher Sortino ratio and are able to survive in the volatile market.