When evaluating mutual fund investments, returns are often a key consideration. However, assessing risk alongside returns is essential for making informed decisions. A useful method for gauging risk and volatility is through the statistical tool known as standard deviation. Widely utilized by fund managers, standard deviation is invaluable for investors aiming to understand risk better. Let's delve into the meaning of standard deviation to enhance your risk assessment skills.

Understanding Standard Deviation

Standard deviation is a percentage that indicates the extent to which a mutual fund's returns might vary from its average annual returns. When applied to historical data, it serves as an indicator of a fund's volatility. Simply put, a higher standard deviation signifies greater volatility, offering insights into potential investment risks.

Note: This concept is used across various financial terms: PFRDA, SWIFT, and AUM.