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Formula sheet/NISM Series V-A: Mutual Fund Distributors/Mutual Fund Scheme Performance
[ MUTUAL FUND SCHEME PERFORMANCE ]

Information Ratio (IR) & Tracking Error

Information Ratio(IR)=(Rportfolio−Rbenchmark)/Standard Deviation of Excess Return(Tracking Error)\text{Information Ratio} (IR) = ( R_{\text{portfolio}} - R_{\text{benchmark}} ) / \text{Standard Deviation of Excess Return} (\text{Tracking Error})
Tracking Error=∑((Rp,t−Rb,t)−Mean Excess Return)2/(N−1)\text{Tracking Error} = \sqrt{ \sum ( (R_{p},t - R_{b},t) - \text{Mean Excess Return} )^{2} / (N - 1) }
Variables

SEBI Mandatory Disclosure: AMCs must prominently disclose the Information Ratio daily on their websites. N: Number of return observations; RpR_{p},t, RbR_{b},t: Portfolio and benchmark return in period t.

Exam note

Tracking error in Index Funds measures replication deviation; for active funds, high Information Ratio demonstrates consistent stock-picking skill.

Worked examples
Sharpe, Treynor, and Jensen's Alpha Evaluation

An equity large-cap fund generated an annualized return of 15.5% with a Standard Deviation of 14.0% and Beta of 1.10. The Nifty 100 TRI benchmark delivered 13.0%, and the risk-free rate (1-year T-Bill) is 6.0%. Compute Sharpe Ratio, Treynor Ratio, and Jensen's Alpha.

Information Ratio & Tracking Error Evaluation

A large-cap equity fund generates an annualized return of 16.2% against its Nifty 50 TRI benchmark return of 14.0%. The standard deviation of the daily excess returns (Tracking Error) over the past year is 2.50%. Calculate the Information Ratio.

Portfolio Turnover Ratio and Average Holding Period

A flexi-cap mutual fund scheme with average daily net assets (AUM) of Rs 5,000 Crore records total stock purchases of Rs 3,200 Crore and total stock sales of Rs 2,500 Crore during the fiscal year. Calculate the Portfolio Turnover Ratio (PTR) and the average holding period of securities.