Alpha
Is your fund manager actually adding value?
What is it?
Alpha measures how much a fund manager has added (or destroyed) through their decisions, after accounting for the returns you would have expected given the market's performance and the fund's sensitivity to market moves (Beta).
A positive alpha means the fund beat its expected return — the manager added genuine value. A negative alpha means the fund underperformed expectations, and you might have been better off in an index fund.
Alpha is calculated using the Capital Asset Pricing Model (CAPM). It is the intercept when plotting fund returns against market returns — the manager's contribution after stripping out market tailwinds.
Formula
α = Rp − [ Rf + β × (Rm − Rf) ]RpFund's actual returnRfRisk-free rate (≈ 6.5%)βFund's Beta (sensitivity to market)RmMarket benchmark return (e.g., Nifty 50)The expression Rf + β × (Rm − Rf) is the expected return predicted by CAPM.
Real Example
A flexi-cap fund over 5 years.
Given
Calculation
Expected return = 6.5 + 0.90 × (13.0 − 6.5) = 6.5 + 5.85 = 12.35% Alpha = 16.0 − 12.35 = +3.65%
What this means
The fund generated 3.65% more than CAPM predicted. The manager added real value beyond simply riding the market.
Good vs Bad Benchmarks
Above +3%
Manager consistently adds substantial value above benchmark expectations
+1% to +3%
Manager adds moderate value — better than index funds over the long run
0% to +1%
Manager barely beats expectations — an index fund may be comparable
Below 0%
Fund underperforms expectations — consider switching to an index fund
Check this ratio for a real fund
MFLens shows Alpha across 1Y / 3Y / 5Y / 7Y / 10Y rolling windows for every Indian mutual fund.
Rolling metrics on MFLens show how each ratio evolves across all historical windows of the selected period. This provides consistency insights beyond traditional trailing calculations. For informational purposes only — not financial advice.