What is Beta in Mutual Funds? A Key Factor for Investors
In mutual funds, Beta is a measure of a fund’s sensitivity to market movements and is used to gauge the fund’s volatility in comparison to a benchmark index, such as the Nifty 50 or the S&P 500. Beta helps investors understand how much a mutual fund might fluctuate relative to the overall market.
Here’s how it works:
- Beta = 1: The fund is expected to move in line with the market. If the market rises by 10%, the fund is also likely to rise by around 10%.
- Beta > 1: The fund is more volatile than the market. For example, if Beta is 1.2, a 10% rise in the market could mean a 12% rise in the fund’s returns (and similarly for losses).
- Beta < 1: The fund is less volatile than the market. A fund with a Beta of 0.8 might only rise by 8% if the market rises by 10%, making it less risky.
In mutual funds, a high Beta is usually preferred by aggressive investors looking for potentially higher returns in exchange for higher risk, while a low Beta might appeal to conservative investors seeking steadier, less volatile growth.
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