MygoalMySip

  • Mutual Funds
    • Mutual Funds
    • Equity Fund
    • Debt Fund
    • Hybrid Fund
  • Stocks
    • Stocks
    • Large Cap
    • Mid Cap
    • Small Cap
  • Personal Finance
    • Personal Finance
    • Savings
    • Tax
Menu
  • Mutual Funds
    • Mutual Funds
    • Equity Fund
    • Debt Fund
    • Hybrid Fund
  • Stocks
    • Stocks
    • Large Cap
    • Mid Cap
    • Small Cap
  • Personal Finance
    • Personal Finance
    • Savings
    • Tax
My-Goal-My-Sip-Final-Logo
Search
Close
My-Goal-My-Sip-Final-Logo
  • Mutual Funds
    • Mutual Funds
    • Equity Fund
    • Debt Fund
    • Hybrid Fund
  • Stocks
    • Stocks
    • Large Cap
    • Mid Cap
    • Small Cap
  • Personal Finance
    • Personal Finance
    • Savings
    • Tax
Login or Sing up

Capture Ratio.

January 21, 2022
in Personal Finance, Learn, Mutual Funds, Savings
capture
 

What is a Capture Ratio, and how does it affect your business? 

Capture ratios have an analytical structure that reveals a mutual fund’s inherent ability to survive market instability. It gives us information that trailing returns are incapable of disclosing. Every security investment involves some level of volatility. Market swings may be both a blessing and a curse, especially when it comes to equity as an asset class. If a conservative investor is unable to accept the risk of volatility, he or she should avoid investing in inequities. An aggressive investor, on the other hand, may find it useful in determining the price of his investment. 

One point concerning volatility needs to be emphasized here. The more an equity fund loses value during a downturn, the more difficult it is for the fund manager to recoup those losses during a market resurgence. As a result, you can’t completely avoid volatility when investing in mutual funds. You can, however, choose a fund that maintains its value regardless of market conditions. 

As a result, this ratio allows you to break down the complex annualized returns to reveal the fund’s outperformance/underperformance during a market rally/slump. A broad-based benchmark, such as the NSE Nifty 50 or the S&P BSE Sensex, is used to measure performance. It reveals the fund manager’s attitude toward risk. It also emphasizes his or her potential for superior risk-adjusted returns. The capture ratios are given as a percentage. The fund’s fact sheet contains the capture ratio for the periods one, three, five, ten, and fifteen years. 

  • Types of Capture Ratio’s: 

It aid in the analysis of fund manager performance and the selection of superior performers over inferior performers. There are two types of capture ratios: upside and downside ratios. 

  • Upside Capture Ratio: 

The upside ratio is used to evaluate a fund manager’s performance during bull markets, when the benchmark has risen. The proportion is given as a percentage. During an upscale period, it is determined by dividing fund returns by benchmark returns. The formula is as follows: 

Upside Capture Ratio = (Fund returns during bull runs/Benchmark Returns) * 100 

It demonstrates the fund’s capacity to outperform the benchmark during bull markets. You can see how much higher the fund’s returns were compared to the benchmark. A higher than 100 upside ratio shows that the fund outperformed the benchmark during the market surge. In bull markets, a fund with an upside capture ratio of 150 has gained 50% more than its benchmark. 

  • Downside Capture Ratio:

The downside ratio is used to evaluate a fund manager’s performance during a bearish trend when the benchmark has dropped. During a bear market, it is determined by dividing fund returns by benchmark returns. The formula is as follows: 

Downside Capture Ratio = (Fund returns during bear runs/Benchmark Returns) * 100 

You can see how much less money the fund lost during bear markets as compared to the benchmark. When the fund’s downside ratio is less than 100, it means it lost less than the benchmark during a market downturn. In downturn markets, a fund with a downside ratio of 80 will lose 20% less than its benchmark. 

As an investor, there are a few things to think about:  

There are a few factors to keep in mind when comparing mutual funds using capture ratios. 

  1. Use a capture ratio that corresponds to your investment horizon. For a 5-year aim, a 3-year capture ratio would be immaterial. 
  2. The benchmark used to compare a mutual fund’s performance should be in the same category as the fund. A debt fund’s performance cannot be compared using the Sensex. 
  3. Carefully compare apples to apples, that is, the capture ratios of funds in the same category. Don’t compare an equity fund’s performance to that of a debt fund. 

How to use capture ratios while Mutual Fund Selection? 

Capture ratios can be a useful tool when choosing a mutual fund. Choosing a fund that gains more than the benchmark during a boom and loses less than the benchmark during a crash is the basic thumb rule. Choose the mutual fund with the highest upside ratio and the lowest downside capture ratio when comparing mutual funds. The rationale for this is that the fund manager must justify the fee that the investors are paying. Otherwise, low-cost index funds would be a better choice. 

Capture ratios can be used to determine whether the fund is meeting its investment goals. When a fund’s goal is to outperform its benchmark, and its capture ratio is close to 100, it’s clear that the fund isn’t succeeding. The ideal ratio would have been greater than 100. Similarly, if a fund’s goal is to avoid losses during a downturn, its capture ratio must be lower than the index’s. On the contrary circumstance, the fund would be losing more than the benchmark, resulting in lower performance. 

  1. Risks posed by social and political shifts: Ongoing social and political concerns in a country might stifle a company’s growth. For example, if a government intends to support indigenous enterprises, international enterprises may be restricted from entering the country. In this case, an investor who has invested in home-grown enterprises will benefit from greater performance of his or her capital.

Read Next: “Different types of schemes in Debt Fund.”

For more information, reach us at [email protected]

Team, MyGoalMySip.

Tags: CAPTURE RATIOINVESTMENTMUTUAL FUNDMUTUAL FUNDS
ShareTweetPin

Related Posts

𝐒𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐥𝐞 𝐚𝐧𝐝 𝐄𝐒𝐆 𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠: 𝐌𝐚𝐤𝐢𝐧𝐠 𝐚𝐧 𝐈𝐦𝐩𝐚𝐜𝐭 𝐰𝐢𝐭𝐡 𝐘𝐨𝐮𝐫 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬
Personal Finance

𝐒𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐥𝐞 𝐚𝐧𝐝 𝐄𝐒𝐆 𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠: 𝐌𝐚𝐤𝐢𝐧𝐠 𝐚𝐧 𝐈𝐦𝐩𝐚𝐜𝐭 𝐰𝐢𝐭𝐡 𝐘𝐨𝐮𝐫 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬

Introduction In recent years, a growing number of investors have started to embrace sustainable and ESG (Environmental, Social, and Governance)...

May 31, 2023
𝐄𝐱𝐩𝐥𝐨𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐖𝐨𝐫𝐥𝐝 𝐨𝐟 𝐄𝐓𝐅𝐬: 𝐀 𝐂𝐨𝐦𝐩𝐫𝐞𝐡𝐞𝐧𝐬𝐢𝐯𝐞 𝐆𝐮𝐢𝐝𝐞
Personal Finance

𝐄𝐱𝐩𝐥𝐨𝐫𝐢𝐧𝐠 𝐭𝐡𝐞 𝐖𝐨𝐫𝐥𝐝 𝐨𝐟 𝐄𝐓𝐅𝐬: 𝐀 𝐂𝐨𝐦𝐩𝐫𝐞𝐡𝐞𝐧𝐬𝐢𝐯𝐞 𝐆𝐮𝐢𝐝𝐞

Introduction: In the ever-evolving landscape of investment options, Exchange-Traded Funds (ETFs) have gained significant popularity among investors. Offering a diverse...

May 29, 2023
𝐔𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐁𝐮𝐲 𝐍𝐨𝐰, 𝐏𝐚𝐲 𝐋𝐚𝐭𝐞𝐫 (𝐁𝐍𝐏𝐋): 𝐀 𝐂𝐨𝐧𝐯𝐞𝐧𝐢𝐞𝐧𝐭 𝐚𝐧𝐝 𝐅𝐥𝐞𝐱𝐢𝐛𝐥𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐎𝐩𝐭𝐢𝐨𝐧
Personal Finance

𝐔𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐁𝐮𝐲 𝐍𝐨𝐰, 𝐏𝐚𝐲 𝐋𝐚𝐭𝐞𝐫 (𝐁𝐍𝐏𝐋): 𝐀 𝐂𝐨𝐧𝐯𝐞𝐧𝐢𝐞𝐧𝐭 𝐚𝐧𝐝 𝐅𝐥𝐞𝐱𝐢𝐛𝐥𝐞 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 𝐎𝐩𝐭𝐢𝐨𝐧

Introduction: In recent years, a new payment option has gained significant popularity among consumers: Buy Now, Pay Later (BNPL). This...

May 24, 2023
REIT in India in 2023: Unlocking Opportunities in the Real Estate Market
Personal Finance

REIT in India in 2023: Unlocking Opportunities in the Real Estate Market

Real Estate Investment Trusts (REITs) have long been a popular investment option for individuals seeking exposure to the real estate...

May 24, 2023
Next Post
protection

Capital Protection Plan.

equity

Advantages vs. disadvantages of Equity Shares.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

startup

Indian Startup’s Crash?

April 26, 2023
women

Women’s Retirement Planning: A Promise To Financial Freedom.

March 14, 2022
PW Insider: May 2022 Edition

PW Insider: May 2022 Edition

May 24, 2022
resolution

New Year’s Resolutions That Can Make You the Wonder Women of Your Life. 

May 9, 2022

subscRibe!

Categories

  • Books
    • Monthly Journal
  • Debt Fund
  • Equity Fund
  • Hybrid Fund
  • Large Cap
  • Learn
  • Mid Cap
  • Mutual Funds
  • Personal Finance
  • Savings
  • Small Cap
  • Stocks
  • Tax
  • Uncategorized

Instagram

    The Instagram Access Token is expired, Go to the Customizer > JNews : Social, Like & View > Instagram Feed Setting, to to refresh it.

About Us

MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

Our goal is to educate people and make them financially literate, and at the same time guide you in your investment journey, in short MyGoalMySip is your investment buddy.

Read More
Facebook Twitter Youtube Linkedin

Quick Links

  • Books
  • Learn
  • Monthly journal
  • Merchandise

    Copyright © 2024 MygoalMySip | All Rights Reserved

    About Us

    MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

    Our goal is to educate people and make them financially literate, and at the same time guide you in your investment journey, in short MyGoalMySip is your investment buddy.

    Read More
    Facebook Twitter Youtube Linkedin

    Quick Links

    • Books
    • Learn
    • Monthly journal
    • Merchandise

      Copyright © 2024 MygoalMySip | All Rights Reserved