Standard deviation measures how much a mutual fund’s returns fluctuate from its average. It matters because it reveals the fund’s volatility—a key indicator of risk.
📊 What Is Standard Deviation?
• Definition: Standard deviation is a statistical metric that shows how much the returns of a mutual fund deviate from its average return.
• Expressed as a percentage, it quantifies the volatility of a fund’s performance over time.
• Example: If a fund has an average return of 12% and a standard deviation of 4%, its returns typically range between 8% and 16%.
- Lowest Standard Deviation implies lower volatility and a more stable performance.
- Standard Deviation measures the volatility or risk associated with the returns of a mutual fund.
🔍 Why It Matters in Mutual Funds
1. Risk Assessment
- A higher standard deviation means the fund’s returns are more spread out—indicating higher risk and unpredictability.
- A lower standard deviation suggests more stable and consistent returns, ideal for conservative investors.
2. Fund Comparison
- It helps compare funds with similar returns but different risk levels.
- For example, two funds may both offer 10% average returns, but the one with a lower standard deviation is less volatile.
3. Portfolio Structuring
- You can blend funds with high and low standard deviations to balance risk and return.
- This is especially useful when building diversified portfolios for goals like retirement or short-term safety.
4. Investor Suitability
- Aggressive investors may prefer funds with higher standard deviation for potential upside.
- Risk-averse investors should lean toward low standard deviation funds for peace of mind.
Funds low in Standard Deviation in 2025
Quantum Gold Savings Fund and ICICI Prudential Regular Gold Savings Fund (FOF) are among the gold mutual funds in India with the lowest standard deviation, offering stable returns and minimal volatility.
🥇 Gold Funds with Low Standard Deviation (2025)
These funds are ideal for conservative investors seeking gold exposure without high risk:
| Fund Name | Expense Ratio (%) | 3Y Return (p.a.) | Key Traits |
|---|---|---|---|
| Quantum Gold Savings Fund | 0.03 | ~27.03% | Lowest expense ratio, low volatility |
| ICICI Prudential Regular Gold Savings Fund | 0.09 | ~27.06% | Stable returns, low deviation |
| SBI Gold Fund | 0.10 | ~27.04% | Large AUM, consistent performance |
| Axis Gold Fund | 0.17 | ~27.14% | Reliable performance, moderate risk |
| HDFC Gold ETF Fund of Fund | 0.18 | ~26.94% | Trusted brand, slightly higher deviation |
These funds invest in Gold ETFs, which track physical gold prices, making them ideal for hedging against inflation and market volatility.
Advisory Angle from invest.tipsgurus.com
• Highlight Quantum Gold Savings Fund as a low-cost, low-risk gold exposure.
• Use standard deviation as a filter when comparing gold funds for portfolio hedging.
• Blend gold funds with equity funds to create crisis-resilient portfolios, especially for retirement or 3-year goals.
Standard Deviation Formula
The formula used in finance for a sample of returns is:
Where:
- = Standard Deviation
- = The return in each period (e.g., each month or year)
- = The Mean (Average) return
- = The number of return periods (data points)
The standard deviation of a mutual fund shows the riskiness of the fund. The higher the standard deviation, the higher the fund’s volatility. And, higher the volatility of the fund, the higher is its risk. Using the below formula, you can compute the standard deviation for a mutual fund:
- List down the yearly mutual fund returns (Investment returns – X)
- Compute the mean of the investment returns (Average Return – X̅)
- Subtract each year’s return from the mean (X – X̅)
- Square each year’s deviation (X – X̅)2
- Add all the values
- Divide the sum by the total number of periods – 1 (n-1)
- Take a square root of the obtained value to determine the standard deviation.
Importance of Standard Deviation in Mutual Funds
Following is the importance of standard deviation in mutual funds:
- Measures Total Risk: Standard deviation considers the total risk rather than just the market-related volatility. Therefore, it is a broader metric than beta.
- Useful for Both Equity and Debt Schemes: Standard deviation helps gauge the variability in returns for both equity and debt schemes.
- Matching Risk Level: Using standard deviation, you can match the risk level of a mutual fund to your own risk tolerance levels.
- Indicator of Future Performance: Standard deviation is an indicator of the future performance of a mutual fund. In other words, using the standard deviation value, you can estimate the returns of a fund (going up or down) from its mean/ average returns.
- Comparing Similar Funds: You can compare funds belonging to the same category. A considerably different standard deviation from similar funds could indicate that your fund’s operations differ in some way (good or bad).