Mutual Fund Ratios – Up and Down Capture Ratio

by Mirae Asset Knowledge Academy

Definition:
The up-market capture ratio is used to evaluate how well an investment manager performed relative
to an index during periods when that index has risen. The ratio is calculated by dividing the
manager's returns by the returns of the index during the up-market, and multiplying that factor by
100.

Formula:

Upside capture ratios for funds are calculated by taking the fund's monthly return during months
when the benchmark had a positive return and dividing it by the benchmark return during that same
month.

Significance
 An investment manager who has an up-market ratio greater than 100 has outperformed the
index during the up-market. For example, a manager with an up-market capture ratio of 120
indicates that the manager outperformed the market by 20% during the specified period.

Down -Market Capture Ratio

Definition:
The down-market capture ratio is used to evaluate how well or poorly an investment manager
performed relative to an index during periods when that index has dropped. The ratio is calculated
by dividing the manager's returns by the returns of the index during the down-market and
multiplying that factor by 100.

Formula:

Downside capture ratios are calculated by taking the fund's monthly return during the periods of
negative benchmark performance and dividing it by the benchmark return
Significance
A downside capture ratio of less than 100 indicates that a fund has lost less than its benchmark in
periods when the benchmark has been in the red.

Investors should ideally choose funds which have High Up Market Capture Ratio and Low
Down Market Capture Ratio.

We will explain Drawdown Ratio and its significance in the next article.

Mutual fund investments are subject to market risks, read all scheme related
documents carefully.