A drawdown is a fall in a fund's NAV from a previous peak to a later low, shown as a percentage of the peak.
A drawdown measures how far a fund fell before it recovered. If a fund's NAV peaks at ₹50 and later falls to ₹35, the drawdown is 30%.
The maximum drawdown is the largest such fall over a period. It shows how far down an investor who bought at the top would have been at the worst point.
Two related figures:
Losses need larger gains to make up. A 30% fall needs a rise of about 43% to get back to the peak, and a 50% fall needs a rise of 100%.
Drawdowns put volatility into rupees and months. In early 2020, many Indian equity funds fell more than 30% in a few weeks, and most had recovered by the end of that year.
Debt funds usually have small drawdowns, but a default or a sharp rise in interest rates can cause a sudden one.
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