Standard Deviation — Mutual Fund Term Explained

How much a fund's monthly returns fluctuate around their average. Higher = more volatile = higher risk.

Standard deviation measures the volatility of returns over time. If a fund delivers 12% average return with a standard deviation of 15%, roughly two-thirds of the time the annual return falls between -3% and +27%.

Small cap funds have high standard deviation; debt funds have low standard deviation.

Formula

SD = √[Σ(Return_i − Mean)² ÷ (N − 1)]

Related terms

• Sharpe Ratio — Return per unit of total risk taken. Higher is better. Shows how much excess return you earn for each unit of volatility.
• Beta — 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.
• Drawdown — The percentage decline from a fund's peak NAV to its subsequent trough. Shows how badly a fund fell from its high point.

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