What is R-Squared in mutual funds?

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If you ever need to check whether a fund’s benchmark is what the fund house claims it to be, then you look up R-Squared. It is a statistical tool that can measure–in 0 to 100 bps–how well a scheme correlates with the benchmark. If it shows zero, then the fund has zilch to do with the benchmark. If it is 100, the fund is Seetha to the benchmark’s Geetha; that is, both are identical. For diversified equity funds, an R-squared value greater than 80 is generally acceptable and is taken to mean that the underlying beta value (which measures the fund’s volatility against its benchmark’s volatility) is reliable.

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