What Is Maximum Drawdown?

Maximum drawdown is the largest percentage decline a fund's price suffers from a peak it has reached down to its lowest subsequent point (the trough). In other words, it shows how far the fund pulled back from its peak during its worst past stretch. For an investor the question is plain: "how far down would I have been at the worst moment?" Maximum drawdown is not a measure of direction but of an extreme value; it describes not the average path but the sharpest retreat that occurred.

How is maximum drawdown calculated?

The logic is conceptually simple and runs over the fund's unit share price series:

• As you move along the price series, the highest value seen so far is continuously updated. This is usually called the "running peak."
• Each day's price is compared against the peak up to that point; how far it sits below the peak is computed as a decline percentage.
• The largest of these declines measured across the whole period is the maximum drawdown.

By this definition, both the peak date where the fall began and the trough date where the low was reached are meaningful; maximum drawdown is not just a percentage but an event between two specific dates. The measurement is always tied to a time window: the longer the window, the greater the chance of catching a sharper peak-to-trough event within it. So a "1-year maximum drawdown" and a "3-year maximum drawdown" can give different values; you should know which window a figure belongs to rather than treating one as the other.

Why it matters: the size of the worst moment

Maximum drawdown surfaces information that measures like average return or average fluctuation hide: a single worst moment. Two funds may have similar average returns; but if one fell 10% along the way and the other 40%, those are very different experiences for a saver. Whether an investor panics at that trough often depends more on the size of this worst moment than on the average figures.

Still, maximum drawdown is not a quality judgment either. A large maximum drawdown does not prove a fund is "bad," nor a small one that it is "safe"; it merely describes what happened in the past. The fund type also sets the context: an inherently more volatile equity fund and a steady money market fund will not carry similar maximum-drawdown figures, so it is more meaningful to compare funds of the same type. Maximum drawdown is also a backward-looking measure: it shows what has occurred and does not guarantee that an equal or larger fall will not happen in the future.

Recovery time is a separate question

Maximum drawdown measures only the depth of the loss; it does not tell you how long that loss took to recover. The time it takes for the price to climb from the trough back to its former peak — the recovery time, or "underwater" period — is a separate concept. Two funds may have suffered the same 20% maximum drawdown, yet one may recover in a few months while the other stays below its old peak for years. Maximum drawdown does not show this difference on its own; that is why the duration of a fall should be assessed alongside its size.

Maximum drawdown, volatility and other measures

Maximum drawdown is not the whole risk picture; it gains meaning when read together with the measures beside it:

• Volatility — measures the price's fluctuation around its average, the general "wobble." Maximum drawdown, by contrast, shows not the average fluctuation but a single worst peak-to-trough moment. A high-volatility fund is more prone to a large maximum drawdown, but the two are not the same thing.
• Standard deviation — the statistical measure behind volatility; it weighs deviations of returns from the mean symmetrically. Maximum drawdown concerns only the most extreme downward event.
• Risk value (1-7) — the band the SPK assigns funds by their return volatility. It does not directly capture maximum drawdown; two funds with the same risk value may have experienced very different maximum drawdowns.
• Sharpe ratio — measures return per unit of risk; it asks "what was earned in exchange for the swings taken on."

Spreading attention across these measures is part of evaluating a single fund against multiple risks, in the spirit of diversification. This site presents funds' 1-year maximum drawdown metric as a structural indicator; it is a secondary column, hidden by default, and you can view different funds' drawdown history side by side on the /fon-karsilastirma page. These pages give no recommendation; they only show the past figure and leave the interpretation to you.