Treynor Ratio is important in mutual fund investing because it tells you how much return a fund gives for each unit of market risk it takes. It helps you compare different mutual funds by showing which one is better at giving returns for the amount of risk involved. A higher Treynor Ratio means better risk-adjusted performance.

What is Treynor Ratio in Mutual Funds?

Treynor Ratio measures the returns earned in excess of the risk-free rate per unit of market risk. It uses beta to show how much return a mutual fund gives for the level of risk taken compared to the market. It helps you know if the fund manager is giving better returns for the market risk you are exposed to.

Why is Treynor Ratio Important for Investors?

Treynor Ratio is important because it helps investors know if they are being rewarded properly for the risk taken. Many investors only look at returns, but this ratio shows how smartly the fund manager is handling risk. It lets you choose funds that deliver better returns with controlled market risk.

How is Treynor Ratio Calculated?

Treynor Ratio is calculated using this formula: (Return of the fund – Risk-free return) ÷ Beta of the fund. The result tells you how much return you are getting for each unit of market risk. For example, if a mutual fund gives 15% return, the risk-free rate is 6%, and beta is 1.2, the Treynor Ratio will be (15-6)/1.2 = 7.5.

How to Use Treynor Ratio for Comparing Funds?

When comparing mutual funds, a higher Treynor Ratio means the fund is better at generating returns for the level of market risk. Use this ratio to filter out underperforming funds that may be giving high returns but with too much market exposure. Treynor Ratio helps you invest smarter with balanced risk and return.

What is a Good Treynor Ratio in Mutual Funds?

A good Treynor Ratio is usually higher than that of other funds in the same category. There is no fixed number, but a fund with a consistently higher Treynor Ratio over the years shows strong performance and smart risk management. It indicates the fund manager is generating better returns with less market risk.

How Does Treynor Ratio Differ From Sharpe Ratio?

Treynor Ratio uses beta to measure market risk, while Sharpe Ratio uses standard deviation to measure total risk. Treynor is useful when your portfolio is already diversified and you only want to measure market risk. Sharpe is better if you want to look at overall risk, including market ups and downs. Both are important tools for smart investing.