What is beta in mutual fund risk assessment?

Question

I am researching relative safety of mutual funds for my aging mother. I don't know what alpha and beta measurements mean, so I can't interprete the ratios.

Answer 1

The 2 variables that have the best measurement of risk are beta and standard deviation.

Beta refers to the correlation of the fund compared to the index (stock market). Usually this means the S&P 500. The closer the number is to 1.0, the more of a correlation.

The standard deviation refers to the variablity of the fund. For example: The 5 yr std dev is 8 and the average return is 10%. What this means is that 2 out of 3 years the return on this investment will be between 2% and 18% (1 out 3 will be higher or lower). 10 + 8 =18% & 10 - 8=2%

The higher the std dev, the more the investment will fluctuate. Sector funds and investments centered on one market (i.e Latin America or Russia) will have a higher standard deviation.

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Answer 2

I would suggest you not to invest in any mutual fund at this stage ......the period is very volatile with immature Indian Money Market. Investment of this nature can';t be risk free. Since this is a very shaky period , and I am sure , you are not a big investor, please don't invest in M. Fund. It's better if you leave the sum in any Bank in the form of Fixed Deposit or , in the form of MIS , which is preferable only if you don't have a regular source of minimum income per month . Please take note of the fact that the world economy is very much affected by US 'slow down ' having all the symptoms of a Recession that may lead to Depression as it happened in 1929 to 1932. The money market as well as consumer purchasing power is reducing fast in the USA ......the latest trend is undoubtedly very much bad . India , by no means , can escape this. Luckily, our Bank Deposits are Insured by RBI and most are Nationalised. Go by FD.,.,,,.......with no risk for a period of 2/3 years at the least.There's no chance of any miraculous recovery..........In India, our politicians are more concerned with "Reservations, vote banks, Elections under a corrupt administrative system " than to find out ways and means to protect the vast majority who are either the "poor or the low middle income groups".