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Before You Invest: 3 Risk Numbers Every Mutual Fund Investor Must Check

By Ima Jahan

Intern

EDGE AMC Limited

Posted on: 27 Aug, 2026

While choosing to invest in a mutual fund we almost always look at the return percentages. But is it the only metric we are supposed to look at? While return tells us how much we might gain, should we not look at the metrics which tell us exactly how much we might lose? This is where risk metrics come into play. Getting higher return by taking on disproportionately higher risk is not a good outcome. Therefore, investors need to look beyond just return metrics and incorporate risk and risk-adjusted return metrics also. 

Why Every Serious Investor Needs to Know This

In this blog post, we will talk about 3 metrics: Volatility, Maximum Drawdown and Information Ratio, which will give new or existing investors an idea of:

• How much does their investment return deviate from the average return (Volatility)
• How much can they lose out on their initial investment at most (Maximum Drawdown)
• How good or bad is the investment performance compared to the market benchmark (Information Ratio)

Why Look Beyond Returns

While return percentage is the popular metric to judge a portfolio, it can be misleading for a few reasons:

• It does not show how much the investment fluctuates over its holding period. A fund can give a 12% return by moving up slowly and steadily and another fund can give the same return by falling sharply first and then recovering. 
• Two investors in the same fund can have very different experiences, depending on when they invested and exited. If someone invests right before a sharp fall, they may panic and exit at a loss, even if the fund does well later. But someone who stays invested through that fall may end up with a good return. 
• To look past these nuances, risk metrics help us to assess: how steady is this fund and what is the worst it could have done?

Knowing so does not predict the future, but it sets the right expectation, so there are no surprises later.

The Three Metrics, Explained

Volatility

• What It Is: Shows how much a fund's returns move up and down over time.
• How It Is Calculated: We look at the fund's returns over regular periods and calculate how spread out they are from the average return. 
• What It Tells You: For example, an investment with a volatility of 9.36% means that about 68% of the time, the fund's annual returns will fall within 9.36% (above or below) of its average historical return.
• Limitation: Volatility does not tell you if the movement was good (sharp gains) or bad (sharp losses). It treats both the same way. 

Looking at EDGE AMC's volatility data for its 4 mutual funds

• EDGE Bangladesh Mutual Fund: Around three-fourths of the money sits in stock-linked sectors like Bank, Pharma, and Consumer, which move with the market and push volatility up. The rest sits in steadier options like bonds and cash, which barely move and pull volatility back down. Together, this balance keeps the fund's swings moderate rather than sharp. 
• EDGE AMC Growth Fund: Being an equity-based fund, almost all the money is in stock-linked sectors like Bank, Pharma, Consumer, and Engineering and very little is kept in bonds, so there's not much left to soften the ups and downs. That's why this fund moves a bit more than the previous EDGE Bangladesh Mutual Fund.
• EDGE High Quality Income Fund: Most of the money is in steady, low-movement options like Treasury Securities, FDRs, and Corporate Bonds, with almost nothing in stock-linked sectors. Since there's very little tied to the ups and downs of the market, the fund barely moves, which keeps its volatility low. 
• EDGE Al-Amin Shariah Consumer Fund: Being a Shariah-based fund it can only invest in Shariah-compliant options which naturally limits exposure to the more volatile parts of the market. It's also worth noting that this fund was launched later than the other three, so its volatility is measured over a shorter, more recent period, and isn't directly comparable to the others.

Maximum Drawdown

• What It Is: Shows the biggest fall a fund has seen, from its highest point to its lowest point, before it recovered.
• How It Is Calculated: We find the fund's peak value (NAV) and the lowest value after that peak, and calculate the percentage fall between them.
• What It Tells You: For example, a maximum drawdown of 16.55% means that if you bought the fund at its highest point, your portfolio would have dropped by 16.55% at its absolute worst moment before bouncing back. 
• Limitation: This metric is based on one event from the past and does not tell us how likely it is to happen again, or how fast a fund will recover next time.

Looking at EDGE AMC’s maximum drawdown data for its 4 mutual funds:

The fixed income fund shows the least drawdown, as expected given lower equity exposure. The Shariah fund follows, likely benefiting from its screening criteria filtering out highly leveraged, volatile names. The pure equity fund and balanced fund show similarly deep drawdowns given the fact that both have substantial equity exposures. 

Information Ratio (IR)

• What It Is: Shows how much active return a fund is generating compared to a market benchmark (DSEX, DSES etc.)
• How It Is Calculated: We take the fund's extra return (fund’s own return minus market benchmark return) and divide it by how consistent that extra return has been (standard deviation of the extra return) 
• What It Tells You: For example, an IR of 0.91 means the fund generates 0.91% of extra return above its market benchmark for every 1% of extra risk the manager takes. 
• Benchmark used: DSEX Index for EDGE Bangladesh Mutual Fund and EDGE AMC Growth Fund, DSES Index for EDGE Al-Amin Shariah Consumer Fund
• Limitation: IR is only as good as the benchmark chosen. If the benchmark does not match the fund well, the IR number can be misleading. 

Note: The High Quality Income Fund is excluded as it consists of fixed-income securities benchmarked against Bangladesh government rates.

Looking at EDGE AMC’s Information Ratio for its 3 mutual funds:

An IR above zero means the fund manager is beating its benchmark, not falling short of it. Since all three funds show positive IRs, it means each manager has added value over their respective benchmark rather than just matching it. 

The Shariah Consumer Fund's IR being the highest (1.08) likely comes from having a smaller, more focused universe to pick from since Shariah rules limit which stocks and instruments it can invest in. So, the manager has fewer options but can potentially know that space very well and pick more efficiently. 

How The Numbers Look for EDGE AMC - A Consolidated Look

• Low Volatility + Low Drawdown + High IR (EDGE Al-Amin Shariah Consumer Fund): The ideal mix which delivers a smooth, low-risk ride with small dips (~9.7%), while beating the market and adding strong extra value
• Low Volatility + Low Drawdown + N/A IR (EDGE High Quality Income Fund): The safest, most defensive option with the smallest historical drops (~7.9%)
• Higher Volatility + Moderate IR (EDGE Growth / Bangladesh Fund): Bigger price swings and deeper drops (~16.5%), but the manager earns decent extra returns to justify taking on more market risk.

Caveats & Limitations

• Different Time Horizons: Each of these 4 MFs have different starting dates from which these metrics have been calculated, so the figures cannot be compared head-to-head.
• Different Asset Classes: Each of these 4 MFs consists of different asset classes where each class has a different return and risk pattern and comparing these is like comparing apples to oranges
• The Takeaway: While not a perfect direct comparison, viewing them side by side provides a practical framework for evaluating risk and return metrics in any future fund.

*The calculations above were made in August 2026. 

Links

• EDGE AMC Fund Selector
• Choosing the right mutual fund
• How mutual funds protect investors
• How to maximise your tax rebate in 2026
• Compare the EDGE funds