Welcome back. In the last lecture, we discussed about mean or the average annual rate of return for a mutual fund. Now, we take a look at standard deviation. Now, standard deviation is nothing but how much the rate of return at any point of time varies from the mean or the average rate of return for the mutual fund. So, standard deviation is basically a measure of how volatile the mutual fund is that if the rates of returns very very heavily from the mean then the risk is the mutual fund is very volatile, if the rate of return does not vary too much on the mean that means, a mutual fund is not very volatile. So, more volatile the mutual fund is more risky it is and less volatile it is the virtual fund is then it is less risky.
So, standard deviation essentially is a measure of risk of the business fund. So as discussed, standard deviation is a measure of how much the returns from a mutual fund at any point of time varies from the mean Return of the mutual fund. So, standard deviation gives an indication of the volatility of the mutual fund does standard deviation is an indicator of the risk involved in a mutual fund. If the standard deviation of a mutual fund is high, the mutual fund is more risky and the vice versa. Next we look at how to calculate the standard deviation for a mutual fund. Now, we see how to calculate standard deviation.
We use the same example that we use to understand average rate of return. Now, calculating standard deviation is rather easy. So, we calculate standard deviation we put the label first. Now to calculate standard deviation, we can use the standard Excel function, STD Dev. So, here we take the function And we pass in all the returns that we have calculated over the period of time. So, just like mean standard deviation also needs to be calculated for a period of time.
So, for this particular example the standard deviation is 1.04%. Now the value of standard deviation should be taken in a relative way. However, we can say that 1.04% generally indicates that the mutual fund should be moderately risky. Thank you for watching see in the next lecture.