Only 6 flexi-cap funds score Sortino ratio above 1: Bank of India leads in downside risk-adjusted performance

Flexi-cap funds are among the most versatile equity mutual fund categories as they allow fund managers to invest across large-cap, mid-cap and small-cap stocks without any market capitalisation restrictions. However, this flexibility also makes it important to evaluate how effectively fund managers manage market downturns.

One of the key measures used to assess downside risk-adjusted performance is the Sortino ratio. Unlike the Sharpe ratio, which considers overall volatility, the Sortino ratio focuses only on downside volatility. It measures the return generated by a mutual fund for every unit of downside risk taken by the scheme.

A higher Sortino ratio indicates that a fund has generated better returns while taking relatively lower downside risk. A ratio above 1 suggests that the scheme has generated excess returns over the downside risk it has taken. A ratio below 1 indicates that the returns generated are lower compared to the downside risk faced by investors.

According to AMFI June data, there are 45 flexi-cap funds in India. However, only six schemes recorded a Sortino ratio above 1.

Flexi-cap funds with Sortino ratio above 1

Bank of India Flexi Cap Fund recorded the highest Sortino ratio in the category at 1.18. This means that for every 1% of downside risk taken, the fund generated 1.18% of excess return above the risk-free benchmark.

Parag Parikh Flexi Cap Fund followed closely with a Sortino ratio of 1.16, while Motilal Oswal Flexi Cap Fund recorded a ratio of 1.08.

Flexi-cap funds with the lowest Sortino ratios

At the other end of the category, some flexi-cap funds recorded weaker downside risk-adjusted performance.

Samco Flexi Cap Fund was the only scheme in the category with a negative Sortino ratio of 0.29. A negative Sortino ratio indicates that the fund’s returns were not sufficient to compensate investors for the downside risk taken.

In simple terms, a negative ratio means that the scheme delivered returns below the minimum acceptable return while still exposing investors to downside volatility.

Shriram Flexi Cap Fund recorded the lowest positive Sortino ratio among the category at 0.32, followed by SBI Flexicap Fund at 0.33.

Return comparison: Higher Sortino ratio fund vs lower-ranked fund

The difference in downside risk-adjusted performance is also visible when comparing long-term returns of funds at the top and bottom of the Sortino ratio table.

Bank of India Flexi Cap Fund, which had the highest Sortino ratio, also delivered better returns across one, three and five-year periods.

The fund generated 21.46% annualised returns over three years and 17.50% over five years, compared with Shriram Flexi Cap Fund’s 10.36% and 9.74% returns, respectively.

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.