Understanding Mutual Fund Beta: A Guide to Volatility

The beta value of a mutual fund can tell you a lot about the volatility of the fund and whether it meets your investment criteria. Here are the basics of the beta value of mutual funds and how it impacts you as an investor.

Beta Value

The beta value of a fund is designed to tell you how volatile a mutual fund is. This is a very common statistical measure that is used to compare one mutual fund against another. If a beta value is set to be 1.0, then it moves exactly with the particular financial index that you are comparing it against. If the beta value is above 1.0, then this means that it moves somewhat independently of the market and can be more volatile. A beta value of less than 1.0 indicates that the mutual fund has very low volatility and will not move as much as the index does.

Investment Decisions

As an investor, you can use this information to your advantage. For example, if you think the market is going to go up, you could purchase a mutual fund with a beta value of more than 1.0, betting it will beat the market. If the market is going down, purchasing a less volatile mutual fund could result in smaller losses.