Drawdown: measuring the fall from a peak
Drawdown is the decline from an investment's highest point to a later low — a direct measure of historical downside.
General investing education — not investment advice. These explainers describe concepts in plain language; they do not assess any fund, security, or person's situation. Investing involves risk, including possible loss of principal. For guidance on personal decisions, consult a SEBI-registered investment adviser.
Not investment advice.
What a drawdown is
A drawdown is the fall in value from a peak to a subsequent trough, expressed as a percentage of the peak. If a fund's NAV reaches ₹100 and later falls to ₹80 before recovering, that episode was a 20% drawdown. The largest such fall over a period is called the maximum drawdown. This is a hypothetical illustration with assumed figures (authored June 2026), not a projection of any actual investment. Real returns vary and may be negative.
The asymmetry of recovery
Falls and recoveries are not symmetric. After a 20% fall (₹100 → ₹80), getting back to ₹100 requires a 25% rise. After a 50% fall, the recovery required is 100%. This arithmetic is why large drawdowns weigh so heavily on long-term results — the deeper the fall, the disproportionately larger the climb back.
Drawdown vs volatility
Volatility summarises the size of all swings, up and down. Drawdown isolates the part investors actually experience as loss: how far below a previous high the investment has been, and for how long. Two funds with similar volatility can have very different drawdown histories.
Why it matters
Maximum drawdown describes the worst historical episode an investment has put its holders through — a concrete answer to “how bad has it been?”. Like all historical measures, it describes the past, not a limit on what the future can do.
Related concepts: risk, volatility.