Alpha is the extra return a portfolio produces above what its market exposure alone would explain. If a fund with a beta of 1 returns 14% while its benchmark returns 12%, the 2% gap is its alpha. Positive alpha suggests genuine skill; negative alpha means the manager underperformed the risk they took.
Why it matters
Raw return flatters anyone in a rising market. Alpha strips out the part of the return you would have earned just by holding the market, so it isolates the value actually added by stock selection or timing. In India, that usually means comparing your equity returns against a relevant index such as the Nifty 50 or Nifty 500 over the same window.
- Positive alpha — outperformed the benchmark for the risk taken.
- Zero alpha — matched the benchmark; you got paid only for market exposure.
- Negative alpha — underperformed; the extra risk was not rewarded.