Beta — Mutual Fund Term Explained

A measure of a fund's sensitivity to market movements. Beta of 1 moves with the market; >1 means amplified moves; <1 means dampened moves.

Beta measures how much a fund's returns move relative to its benchmark. A beta of 1.3 means if the Nifty rises 10%, the fund typically rises 13% (and falls 13% when the market falls 10%).

Higher beta = higher risk AND higher potential return. Aggressive equity funds typically have beta above 1.

Formula

Beta = Covariance(Fund, Market) ÷ Variance(Market)

Related terms

• Alpha — The excess return a fund generates over its benchmark. Positive alpha means the manager added value beyond what the market delivered.
• Standard Deviation — How much a fund's monthly returns fluctuate around their average. Higher = more volatile = higher risk.
• Sharpe Ratio — Return per unit of total risk taken. Higher is better. Shows how much excess return you earn for each unit of volatility.
• R-Squared — How much of a fund's returns are explained by its benchmark. R² of 100 = moves completely with benchmark; 0 = moves independently.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.