Before investing, it is important for any investor to measure the risks in any type of Investments. Measuring the risks in investments helps the investors to take their investment decisions according to their risk appetite. There are tools available to measure the risks in Mutual Funds are: Standard Deviation Beta Weighted Average Maturity What is Standard Deviation (SD)? Standard Deviation helps to measure how a Fund’s returns deviate from its paste returns in a particular period of time. If the deviation is higher for a fund, its returns are risky. The deviation of one scheme is compared with other schemes in the same category to judge the performance. You can calculate SD by using Spread Sheet using the formula ‘STDEV’. See the below image: To find the Annualized SD, you can use the ‘SQRT’ formula as above. What is Beta? The method ‘Beta’ helps to measure how a scheme follows its index. Every scheme has its own Benchmark index which it follows for its investment objectives. It is the comparison of the value of the market index and NAV of the scheme for the day when it is need to be compared. The returns are calculated using the value on different days both for Index of the market and NAV. You can calculate Beta by using Spread Sheet using the formula ‘SLOPE’ function. See the below image: The above image indicates the beta is 0.84 is less than 1, which means the fund is less risky than the SENSEX market. If the beta is more than 1 it means that the fund is more risky than the market. What is Weighted Average Maturity? This method helps to measure the risks in Debt Funds. Debt Funds, which are already issued, lose value whenever the interest rates in the market increases. If a debt fund holds the interest rate of 9% and if the market interest is at 10%, the fund loses 1%. At the same time if the market interest decreases, say, 7.5%, then the already issued Debt fund gains 1.5% interest. The longer the tenure of a fund the more risk in its interest rates and the returns. If a fund indicates higher Weighted Average Maturity period, it is more fluctuate in its yields. Following is the example for calculating the maturity period: the following fund invests of Rs.200 Crores in various securities with various maturity periods as follows: The Average maturity period for the above fund is 1.01 year and less risky. The returns from Mutual Funds always come with its own risks. It is necessary for the investors to measure the risks while they measure the returns from mutual funds. Using the above methods, you can make your decisions over how much you can bear the risk.