What Does the Term Beta in a Mutual Fund Imply?

Beta in a mutual fund works in the same as beta for a stock. A stocks start-off with a beta of one and any beta higher than that is regarded as volatile. A beta of less than one means the stock is less volatile.

What in short this implies for a stock is that any beta above one would mean that the stock will fall faster than the markets and anything less then one means that the stock would fall slower than the markets.

Same thing in a rising market. A beta over one means the stock will rise faster than the market and fall faster than the markets when the markets fall.

The same explanation is also for a mutual fund. You start off with a Beta of one and anything over one means the fund is more volatile than the markets.

Zero Beta value: A rare case of study that suggest that the stock price does not show any movements or volatility in relation to markets.

Why is Beta Value Relevant?

If you have an appetite for risk, you should go for a fund that has a beta value over one. This would ensure that you make more money when the markets rise. This also means that you could lose more money when the markets fall. If you do not have an appetite for risk the best bet would be a beta value of the fund at less than one, which would protect your capital in a falling market.

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