Ulcer Index

The Ulcer Index (UI) measures the depth and duration of drawdowns from prior peaks. It is the RMS (root-mean-square) of percentage drawdowns over a lookback window: UI = √(mean of squared drawdown %). Unlike max-drawdown (one number), UI captures how long an investor "lives underwater" — i.e., the actual stress experienced.

Worked INR example

Fund A: peak ₹100, falls to ₹70 once (max DD 30%), recovers in 3 months → UI low. Fund B: peak ₹100, repeatedly drifts between ₹80-₹95 for 18 months (max DD 20%) → UI high despite milder max-DD. For a SEBI debt-fund example with 3% UI vs equity fund 18% UI, the debt fund is ~6x less "ulcer-inducing" — relevant for retirees / SWP investors.

When to use

• Retiree / SWP portfolios where prolonged drawdowns hurt income
• Comparing two funds with same max-DD but different recovery shapes
• Computing Ulcer-Performance-Index (UPI) = excess return / UI

SEBI caveat

Not part of SEBI riskometer or factsheet disclosures. Compute from daily NAVs over 3-5 years. Useful complement to VaR and Sharpe for behavioural-friendly comparison.

Related terms: Drawdown, Calmar Ratio, Sortino Ratio.