New Delhi, Jan. 21 -- When investing, the allure of stellar returns often becomes the primary driver of decision-making. As investors celebrate a mutual fund scheme that delivers a 15% annual return, only a few stop to ask: at what cost?

At a time when financial markets are turbulent, you need to weigh risks and returns. To understand whether your MF investment is truly performing well or is simply a risky bet delivering dazzling returns, you need a tool that zooms in on the scheme's risk and reward. This is where the Sharpe ratio comes in handy. Let us understand the tool and how it helps calculate your returns.

Developed by Nobel laureate William F. Sharpe, the ratio is a tool that measures risk-adjusted returns. Instead of just looki...