It informs investors about a fund's concentration level in sectors and stocks. There are different sectors where the fund manager can allocate the funds to. While there are sector specific funds which invests the funds to particular sectors, other funds exposes the customer to different sectors. An aggressive fund manager may have high concentration among fewer companies and sectors, which may not be appropriate for investors seeking diversification.

One of the most useful ratios in mutual fund industry, Sharpe ratio measures the risk-adjusted returns. It is the excess return over risk-free return divided by standard deviation. Funds with similar returns can be compared on the level of risk taken to generate the similar returns.

It measures the volatility of a fund's returns vis-à-vis its average. With mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance. If a fund has 11% average rate of return and a standard deviation of 3%, its return will range from 8% to 14%. A volatile stock would have higher standard deviation than fund with less volatility.