Benchmark Risk

Benchmark risk - A benchmark risk is a measure of looking at all the different risks that could be involved that would affect the potential returns on the mutual fund by comparing it to the benchmark, (a standard such as NASDAQ) with which it is to be compared. Of course, we expect the mutual fund to be profitable. Not only are the actual returns important, the level of risk involved in generating the return is also important, and therefore there are also risk adjusted returns. Mutual fund risks are assessed using five different pointers. The five pointers are: Beta, Alpha, standard deviation, R-squared and Sharpe Ratio.