Why in news
SEBI’s proposal for asset management companies (AMCs) to disclose Information Ratio (IR) for each of their funds
IR is appropriate for investing surplus cash as such investments do not have a time horizon nor the need to earn a required return to achieve a life goal.
Sortino Ratio (SR) is more appropriate for goal-based investments in mutual funds
Sortino Ratio
The Sortino ratio is a variation of the Sharpe ratio
Sharpe ratio differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative portfolio returns—downside deviation—instead of the total standard deviation of portfolio returns.
The Sortino ratio takes an asset or portfolio's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation.
The ratio was named after Frank A. Sortino
The Sortino ratio is a useful way for investors, analysts, and portfolio managers to evaluate an investment's return for a given level of bad risk
Just like the Sharpe ratio, a higher Sortino ratio result is better
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