InvestmentFinancial Glossary
Alpha
Definition
The excess return generated by an investment or fund manager above the benchmark return, after adjusting for risk. An alpha of +2% means the fund outperformed its benchmark by 2 percentage points. Negative alpha indicates underperformance.
Why It Matters
Alpha is the key metric for evaluating whether an actively managed fund justifies its higher expense ratio. If a large-cap fund charges 1.5% in fees but generates zero alpha over the Nifty 50 index, you are better off in a 0.2% index fund. Consistent positive alpha over 5+ years is rare and valuable.