Maximum Drawdown — Mutual Fund Term Explained

The largest peak-to-trough decline in a fund's history. Represents the worst-case loss an investor could have experienced.

Maximum Drawdown (MDD) is the largest peak-to-trough percentage loss over a fund's history. Represents the worst case for someone who bought at the absolute top and sold at the absolute bottom.

Equity funds saw MDDs of 60-70% during the 2008 global financial crisis.

Formula

MDD = (Trough Value − Peak Value) ÷ Peak Value × 100

Related terms

• Drawdown — The percentage decline from a fund's peak NAV to its subsequent trough. Shows how badly a fund fell from its high point.
• Standard Deviation — How much a fund's monthly returns fluctuate around their average. Higher = more volatile = higher risk.

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