Drawdowns
Peak-to-trough NAV decline that measures how far a fund fell from its high before recovering.
A drawdown measures how much a mutual fund's NAV has fallen from its most recent peak to a subsequent trough. It answers the question an investor actually asks: "If I had invested at the worst possible time, how bad would things have looked before recovering?"
What it measures
Drawdown captures both the depth of a loss and its duration — two dimensions that trailing returns hide entirely. A fund might show a healthy 3-year CAGR but have passed through a gut-wrenching 35% decline along the way. Knowing that in advance changes position-sizing and investor behaviour.
How it is computed
At every NAV date t, MintByte tracks the running maximum NAV over the look-back window (typically 3 years of daily data):
drawdown(t) = (NAV(t) / max(NAV[0..t])) − 1
The result is always ≤ 0. A value of −0.28 means the fund is currently 28% below its prior peak.
The current drawdown is drawdown at the most recent date. The maximum drawdown (see Max Drawdown) is the minimum value of this series over the look-back — the single deepest trough.
Example: A large-cap fund had peak NAV ₹148 in January 2023 and troughed at ₹107 in March 2023. Drawdown at trough = (107/148) − 1 = −27.7%.
How to interpret
- A drawdown of 0% means the fund is at an all-time high for the look-back window — no current impairment.
- Equity large-cap funds in India typically see peak drawdowns of 20–35% in bear cycles; mid/small caps often exceed −45%.
- Debt funds in a stable rate environment rarely breach −5%; long-duration funds can see −10% or worse in rate-shock cycles.
- Investors with a short horizon (< 3 years) should weigh a fund's typical drawdown depth against their own loss-tolerance before investing.
Limitations + caveats
Drawdown is entirely look-back dependent: a 3-year window will not capture a drawdown that occurred 5 years ago even if it was the fund's worst episode. Drawdown analysis does not predict when the next drawdown will occur or how deep it will be. During long bull markets, drawdown figures can look reassuringly small only because the look-back excludes prior cycles.
Related metrics
- Max Drawdown — the single deepest drawdown in the look-back; a one-number summary of tail loss.
- Recovery Period — how many months it took to climb back to the prior peak.
- Volatility — standard deviation of returns; a companion measure of dispersion risk.
Sources
NAV series: AdvisorKhoj API (primary), AMFI daily NAV file (fallback). Drawdown computed nightly after NAV refresh using 3-year rolling window.