Sortino Ratio
Your reward for every unit of downside risk
What is it?
The Sharpe Ratio penalises a fund for all volatility โ upward and downward alike. But investors only lose money when returns go down, not when they go up. The Sortino Ratio fixes this by using only downside deviation in the denominator.
A fund with many positive surprises but few negative ones will have a higher Sortino than Sharpe. This makes the Sortino particularly useful for mid-cap or thematic funds where occasional large upswings are a feature, not a flaw.
In practice, a Sortino Ratio noticeably higher than the Sharpe Ratio tells you the fund's volatility is mostly on the upside โ a very good sign.
Formula
Sortino Ratio = (Rp โ Rf) รท ฯdRpFund's annualised returnRfRisk-free rate (โ 6.5% in India)ฯdDownside deviation (std dev of negative returns only)Real Example
The same fund, separating upside and downside volatility.
Given
Calculation
Sortino Ratio = (14.5 โ 6.5) รท 5.5 = 8.0 รท 5.5 โ 1.45
What this means
A Sortino of 1.45 vs a Sharpe of 0.80 tells you the fund's volatility is mostly positive โ it surprises on the upside far more often than the downside.
Good vs Bad Benchmarks
Above 2.0
Very low downside risk relative to returns
1.5 โ 2.0
Solid downside protection โ fund manages bad periods well
1.0 โ 1.5
Acceptable, but the fund faces meaningful drawdowns
Below 1.0
High downside risk โ losses can be steep when markets fall
Check this ratio for a real fund
MFLens shows Sortino Ratio 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 โ not financial advice.