Max drawdown
The single largest peak-to-trough NAV decline over the look-back — a one-number summary of a fund's worst historical loss.
Max drawdown (MDD) is the answer to: "What is the worst loss an investor in this fund could have experienced if they had bought at the peak and held until the trough?" It is the most severe drawdown in the entire look-back window — a single number that summarises the fund's worst historical episode of pain.
What it measures
Max drawdown captures tail risk in a way standard deviation cannot. A fund with a standard deviation of 12% and another with 14% might look similar, but if the second fund's worst single episode was a −52% decline versus −28% for the first, the practical investor experience is entirely different. MDD makes this visible.
How it is computed
From the full drawdown series (see Drawdowns), max drawdown is simply the minimum value:
MDD = min(drawdown(t)) for all t in look-back window
= min[ (NAV(t) / max(NAV[0..t])) − 1 ]
MintByte computes this over a 5-year look-back of daily NAV data to capture at least one full market cycle.
Example: HDFC Mid-Cap Opportunities Fund — using daily NAV from 2021 to 2026, the deepest trough was March 2023 when the fund had fallen 31.4% from its October 2021 peak before recovering. MDD = −31.4%.
The start date of the drawdown (the peak) and end date (the trough) are also recorded, allowing assessment of how long the decline lasted.
How to interpret
- Equity large-cap funds: MDD typically −20% to −35% over a 5-year window that includes a bear phase.
- Mid-cap funds: −30% to −50% is common in a down cycle.
- Small-cap funds: Exceeding −55% in severe corrections is not unusual (e.g. 2018–2020 combined cycle).
- Hybrid balanced-advantage funds: typically −15% to −25%.
- Debt liquid/money market: rarely worse than −2% to −3%; any MDD > −5% in debt is a warning sign.
Lower (less negative) MDD is better, but must be read alongside return. A fund with −10% MDD but 8% CAGR is not superior to one with −25% MDD and 17% CAGR — the question is whether the return compensates for the depth of the risk.
Limitations + caveats
MDD is the historical worst case; it does not bound future drawdowns. During unprecedented market events, future MDD can exceed historical MDD significantly. It also ignores the frequency of drawdowns — a fund might have a modest MDD but experience drawdowns regularly, making the actual investor experience choppy. See Recovery Period for how long recovery took after the worst episode.
Related metrics
- Drawdowns — the full drawdown series from which MDD is derived.
- Recovery Period — time taken to recover from the MDD trough back to the prior peak.
- Sortino Ratio — aggregates downside volatility rather than isolating one worst episode.
Sources
Daily NAV: AdvisorKhoj API (primary), AMFI (fallback). 5-year look-back. MDD recomputed nightly; peak/trough dates stored alongside the MDD value.