Sharpe ratio explained

The Sharpe ratio answers a crucial question: how much return did the fund earn for each unit of risk it took? It rewards funds that deliver steady returns and penalises those that get there via a wild ride.

The formula

Sharpe = (Fund return − Risk-free rate) ÷ Standard deviation. The risk-free rate is roughly what a government bond pays; standard deviation is the fund's volatility.

How to read it

• Higher is better — more return per unit of risk.
• A Sharpe of 1 is decent; above 1.5–2 is strong (for equity, over long periods).
• Always compare within the same category and over the same period.

Limitation: Sharpe treats all volatility as bad — even upside swings. The Sortino ratio fixes that by counting only downside risk.

→ Sharpe ratio is shown under "Risk Analysis" on every fund page.