Alpha And Beta Metrics: Explaining How They Can Help Mutual Fund Investors

Mutual fund investments are increasingly becoming more and more popular among investors. Data released by the Association of Mutual Funds in India (Amfi) for the month of July 2026 showed that systematic investment plan contributions grew to Rs 31,961 crore, which in turn pushed the total mutual fund industry assets under management (AuM) to a record high of Rs 85.76 lakh crore, showing the rising popularity of mutual funds as an investment.

Yet, despite the surge in retail participation, the criteria investors use to choose schemes tends to remain simple as investors often rely on informal recommendations, word-of-mouth advice or past 1-year, 3-year, and 5-year annualised returns. While these methods are helpful for making an investment decision, trailing returns do not always give the complete picture of risk and reward associated with a specific mutual fund scheme.

Looking Beyond Trailing Returns

One way of understanding risk-and-return metrics of a mutual fund scheme is by using metrics which are called the “Greeks”. Even though these metrics sound academic and math-heavy, retail investors can also understand and use them to make more informed investing decisions. While there are many such metrics, understanding Alpha and Beta can improve how investors assess the mutual fund scheme they plan to invest in.

Meet the Greeks

While there are many financial metrics, understanding Alpha and Beta can improve how investors assess the mutual fund scheme they plan to invest in.

What Is Alpha (α) In Mutual Funds

Alpha represents the return generated by a mutual fund scheme relative to its benchmark index or underlying index (such as the Nifty 50 or BSE 500), after accounting for market risk. Mutual fund schemes track an underlying index and aim to generate returns in line with the index’s returns. If a scheme outperforms its underlying index, the Alpha becomes positive. For example, an Alpha of +2.5 means the fund generated 2.5 per cent more return than what was expected given its risk profile. On the other hand, if a scheme underperforms the benchmark, it results in a negative Alpha.

What Is Beta (β) In Mutual Funds

Beta gauges how sensitive a mutual fund is to movements in the broader market. A benchmark index carries a Beta of 1.0. If a scheme has a Beta of 1.2, it means it is historically 20 per cent more volatile than the index. What this means for investors is that while there is a chance of the scheme offering higher returns during bull runs, it may also lead to steeper drawdowns during market corrections.

On the other hand, a Beta of 0.8 indicates a defensive scheme which can have lower volatility, meaning both its upside and downside may be limited compared to another scheme with a higher Beta. Thus, as a mutual fund investor, knowing a fund's Beta helps you align its volatility with your personal risk tolerance.

How Can Investors Check Alpha and Beta

For the math-averse investor, calculating Alpha and Beta can feel like a complicated task. However, in most situations, investors do not need to calculate these ratios manually as they are published in the monthly factsheet released by fund houses in the "Risk Ratios", "Quantitative Indicators", or "Statistical Measures section.

Learning to read Alpha and Beta bridges the gap between passive guessing and active wealth creation. Understanding these metrics can help investors in investing according to their bespoke risk profiles and give them realistic expectations when it comes to returns.