Market Up and Down Capture Ratios – All you need to know

Market-up capture ratio is a statistical measure that will tell us how well the mutual fund scheme fund manager outperformed the index in the up market.
Similarly, we can use the down capture ratio also to show the fund manager how well he protected the scheme nav in a downtrend market.
So, these two ratios are very important to measure the fund managers outperformance.
Let’s discuss about the Market up and down capture ratios in detail.
Calculating the up-market capture ratio…
The market-up capture ratio is calculated by dividing managers returns with the returns of the index during an uptrend and multiplying that factor with 100.
up/Down – MCR = MR/IR*100
where MCR = Market capture ratio,
MR = Managers return,
And IR = index return.
Understanding the Up Market Ration…
If a fund-up capture ratio is 130%.
That means the fund manager has outperformed the index by 30% in a bull market.
In addition, if the index has given 10% return, the manager has given 3% extra return, i.e., 13% return.
If you are looking for returns over and above the index.
You will invest in actively managed mutual funds.
And this up-market ratio is a good tool to evolve the fund’s performance compared with the index.
But do remember, while selecting a mutual fund scheme to invest in, do not just go by the up-market capture ratio.
Always compare the downcapture ratio with the upmarket capture ratio.
Imp Note: The market capture ratio of index funds is always almost close to 100%.
Examples of how to use an upmarket capture ratio…
If the down market capture ratio is 110 and the up market capture ratio is 140,.
In the above example, the scheme fell 10% extra than the index in case of a downfall.
And in case of an uptrend, the scheme has given 40% extra return than the index.
Now, we can simply compare both the ratio and measure the overall performance of the mutual fund scheme.
You can calculate the overall performance by dividing this ratio with the down capture ratio.
i.e., 140%/110% = 127%.
Finally, the underperformance of the scheme in the trend is compensated by the uptrend capture ratio, and the overall performance is 127% compared with the index.
Similarly, if the down capture ratio is 70% and the up capture ratio is 90%,.
Then overall performance = 90%/70% = 128.5%,
In the above case also, in spite of both the ratios being below 100%, the overall performance is good and over and above the index.
So, if the fund manager is better in the down market than the up market, still the fund can beat the index returns.
Market-down capture ratio…
This ratio is a statistical measure to evolve the fund manager’s performance during the market-down trend.
If this ratio is 90%, that means the fund manager is capturing only 90% of the fall.
Hence, we can call the fund manager is beating the market in the down trend.
In addition, this ratio is calculated by dividing the fund manager return with the index return and multiplying the factor with 100.
Breaking down the down capture ratio…
If this ratio is 80%, that means the fund has fallen 20% less than the index in a down trend.
Hence, we can call that the fund manager has outperformed the market in a downtrend.
However, the analysts also look at the up capture ratio along with the down capture ratio to see the overall performance of the fund manager.
Examples of the down-capture ratio…
If the down capture ratio is 110 and the up capture ratio is 140,.
In the above example, the scheme fell more than the index in the case-down trend.
But in the uptrend, the scheme has given 40% extra return than the index.
Finally, to know the overall performance of the scheme, we need to divide the up capture ratio with the down capture ratio.
I.e., 140%/110% = 127%.
So, market up-and-down capture ratios are very useful for the analysis of the fund manager’s performance compared to the bench market.
Let’s analyse market up-and-down capture ratios with a random example…
You can see in the image that I have taken monthly random returns for the scheme and index in columns 2 and 3.
In addition, I have calculated the CAGR for one year when there is a +ve monthly return for the index in column 4.
Similarly, I have calculated the CAGR for the monthly returns for the scheme in column 5.
And CAGR can be calculated using the formula CAGR = (1+r1)*(1+r2)… (1+rn) – 1.
In the above example, I got index cagr in up trend as 8.78% and scheme cagr as 10%.
Now, you can get up capture ratio by dividing the scheme cagr with index cagr.
i.e., 10%/8.78%. = 118%.
That means the scheme fund manager has outperformed the index in an uptrend.
Similarly, you can calculate the CAGR for the index and scheme when there is a a negative monthly return.
And if you divide the scheme cagr with index cagr, you will get the down capture ratio.
i.e., -11.23%/-10.39% = 108.10%.
Here, the scheme failed to perform better in a falling market, as it fell more than the index.
Moreover, you will get the overall scheme performance if you divide the up capture ratio by the down capture ratio.
i.e., 118%/108.1% = 109%.
So, the overall scheme performance is good, compared to the index, as the score came more than 100% for overall performance.
Finally, you will get ready-made ratios on this website for all active mutual funds in India.
Read the article, Nifty 50: Future prediction—the best way to do…
Also read article about Nifty 50—CAGR for next 10 years—How to calculate?
And read article Is it safe to invest in nifty 50 in 2025?”