TradingIntermediate
Drawdown
The fall from a portfolio's peak value to its lowest point before a new peak.
Detailed explanation
Maximum drawdown is the worst such fall over a period, and it is the most honest measure of pain. Recovery is asymmetric: a 50% fall needs a 100% gain just to get back to level.
Formula
Drawdown % = (Trough value − Peak value) / Peak value × 100
Example
A ₹10,00,000 portfolio falling to ₹6,50,000 has a 35% drawdown and needs a 53.8% gain to recover.
Why it matters
Most investors abandon a good strategy during a drawdown, so knowing the historical worst case in advance matters more than the average return.
Key points
- Recovery maths is asymmetric and unforgiving.
- Higher-return strategies usually carry deeper drawdowns.
- Judge a fund's maximum drawdown alongside its CAGR.
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.