Alpha

Alpha refers to the % outperformance by funds over and above the performance of their benchmark.

It is a measure of outperformance and thus higher alpha represents a better performance keeping other factors constant.

For eg : Fund A’s returns are 12.5% vs its benchmark’s returns of 10%, that makes Alpha = 12.5% – 10% = 2.5%

Similarly, Fund B belongs to the same category as fund A and has returns = 15% & thus an alpha of 5% representing outperformance over both its peer fund and its benchmark.