SIP Picking? 1 Ratio Reveals Your Fund Manager's Skill

The Information Ratio tells you if your mutual fund manager is genuinely skilled or just getting lucky. A higher number means better returns for the risk they're taking with your money.

Here's what happened: The Information Ratio (IR) measures how much extra return a fund manager earns above a benchmark like Nifty 50, per unit of risk taken.. An IR above 0.5 is generally considered good; above 1.0 is excellent — meaning the manager consistently beats the index without wild swings.. IR is especially useful for comparing active equity funds, where you pay higher expense ratios expecting the manager to outperform an index..

What you should do: Check your fund's factsheet or platforms like Value Research/Morningstar for its Information Ratio before your next SIP top-up.. Compare the IR of your active fund against a low-cost Nifty 50 index fund — if IR is below 0.3, the index fund may serve you better.. Avoid chasing funds with a high 1-year return alone — use IR alongside Sharpe Ratio to judge whether returns came from skill or sheer market luck..

A fund with a consistently positive IR over 3–5 years across market cycles signals a genuinely skilled manager — not just a bull-market winner riding momentum.