By continuing, you agree to LoansJagat's Credit Report Terms of Use, Terms and Conditions, Privacy Policy, and authorize contact via Call, SMS, Email, or WhatsApp
Disclaimer: The information published on LoansJagat is intended for general informational and educational purposes only and should not be considered financial, legal, or investment advice. Interest rates, loan terms, statistics, and other data may change over time and may vary by lender or source. Please verify the latest information and consult a qualified financial advisor or the respective Bank/NBFC before making any financial decisions.
Apply for Loans Fast and Hassle-Free
Subscribe Now
About the author
LoansJagat Team
‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.
Simplify All Your Loans Into One Affordable EMI
Customers Served
Debt Consolidated
1200+ Reviews
Locations in India
Club all Loans & Credit Card Bills into Single EMI
Quick Apply Loan
Consolidate your debts into one easy EMI.
Takes less than 2 minutes. No paperwork.
10 Lakhs+
Trusted Customers
2000 Cr+
Loans Disbursed
4.7/5
Google Reviews
50+
Banks & NBFCs Offers
Other services mentioned in this article
Key Insights
You will know that the information ratio is different from the Sharpe ratio, and learning how to information ratio calculation?
The key difference between Sharpe ratio and the information ratio is that the latter focuses on performance compared to a benchmark. Some investors looking at mutual funds, the information ratio in mutual fund is a strong way to judge a manager’s skill.
Are you frustrated with metrics that don’t tell the whole story?
The Information ratio portfolio performance measures how consistently a portfolio outperforms its benchmark. When you move beyond comparing sharpe vs information ratio, you start to see where real manager skill shows up.
You can think of a batting average for fund managers. Unlike the information ratio vs sharpe ratio, the information ratio focuses on active returns compared to tracking error.
Information ratio is a portfolio performance measure that assesses skill. Do you know? What is a good information ratio starts at 0.5.
Example:
I compared two funds, and both performed well when looking at the sharpe vs information ratio. However, when I focused on the information ratio vs sharpe ratio evaluation, Fund A scored 0.85. This shows what a good information ratio looks like in practice.
The information ratio portfolio performance measures via formula takes raw returns and turns them into a clear way to determine whether the investor's returns are due to skill or luck.
Here is the Information Ratio Formula:
IR = Portfolio Return − Benchmark Return / Tracking Error
Or simply:
Let’s understand the Information Ratio formula with the real life example:
Take the Mirae Asset Large Cap Fund as an example. It is one of India's top-performing equity funds.
IR= 2.7% / 3.4%= 0.79
A score of 0.79 shows strong and regular performance. This is well above the 0.5 level that most analysts consider significant.
Now, understand what this score means, or what is a good information ratio?
A high IR score helps show which fund managers have real skill, not just good luck.
The Information Ratio helps you see if your mutual fund manager consistently earns the fees you pay.
Many investors focus only on high returns, but experienced investors look for consistency return and risk management. The Information Ratio shows if a fund manager really outperforms their benchmark or just benefits from market trends.
If a mutual fund’s Information Ratio is above 0.5, it suggests the manager is skilled and can be trusted with your investment.
Related Blog Post
Good manager skill
*T&C Apply
The Sharpe Ratio shows how much return you get for each unit of total risk. The Information Ratio shows how much extra return you earn for each unit.
You can think of the Sharpe Ratio as efficiency. On the other hand, the Information Ratio measures a manager’s skill compared to a benchmark.
Here is the table, which shows you step by step comparison:
Use the Sharpe ratio to compare funds from different categories. Use the Information Ratio to see if your active fund manager is truly outperforming their benchmark. If investors use both at the same time, it will give investors the clearest view of performance.
Use both ratios together. The Sharpe ratio measures efficiency, while the Information Ratio highlights the manager's skill.
The Information Ratio is a powerful way to measure a manager’s real skill, not just luck or market trends, and you can learn how the formula works, see how it compares to the Sharpe Ratio, and use it to choose the best mutual fund with clear data.
The information ratio calculation is: Information Ratio = (Portfolio Return − Benchmark Return) / Tracking Error. It measures how consistently a portfolio generates excess returns compared to its benchmark relative to the level of active risk taken.
The Sharpe Ratio measures return compared to the risk-free rate using total portfolio risk. The Information Ratio measures how consistently a portfolio outperforms its benchmark using tracking error. Sharpe vs information ratio compares overall efficiency versus manager skill.
The Information Coefficient (IC) measures prediction accuracy in stock selection. However, it does not show how those predictions affect portfolio returns. The Information Ratio considers both active returns and risk, which makes it a more practical measure of a manager’s real performance.
Portfolio constraints limit investment choices. If active risk increases but returns do not increase proportionally, tracking error rises faster than excess returns. This reduces the Information Ratio, meaning the manager is taking more risk without generating enough additional return.
A good Information Ratio is generally above 0.5. This suggests the fund manager is consistently outperforming the benchmark. Scores above 0.75 indicate strong skill, while values above 1.0 are rare and exceptional in active portfolio management.
