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.

It is calculated as standard deviation of the difference between the fund and the index returns. It measures how closely a fund follows the benchmark index. It is the most important ratio while choosing which index fund to invest in. Funds with lower tracking error provide returns in line with the benchmark indices.

It is the measure of fluctuations in the asset price. It refers to the amount of uncertainty or risk about the size of changes in a security's value. The higher the fund’s volatility, the more vigorously its price or return fluctuates. It indicates that the change in prices of security. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.