For investors in actively managed equity mutual funds, the worth of a fund lies in how much return it is able to generate over that given by the relevant benchmark. So, at a basic level, the choice of fund will have to be driven by how much value a fund manager is adding vis-a-vis an index. Alpha, which measures this value addition, is often taken as a metric to gauge fund performance. Investors who seek outperformance would be drawn towards funds running a higher alpha. But can investors always benefit from the pursuit of high alpha? IMPORTANCE OF ALPHA Simply told, alpha is the excess return delivered by a fund over its benchmark index. But more precisely , it is the excess return or value generated by a fund manager over the fund's expected return. This expected performance is based on the risk taken by the fund manager relative to the market, which is defined by beta. Thus, a fund's alpha is derived from its underlying beta. A beta value of 1.5 indicates the fund would
