A drawdown is the percentage decline in a fund's NAV from its peak to a subsequent trough — the maximum drawdown is the largest such peak-to-trough decline in history.
Drawdown measures how much an investment falls from its highest point before recovering. For example, if a fund's NAV rose to ₹200 (peak) and then fell to ₹130 before recovering, the drawdown is 35%. Maximum Drawdown (MDD) is the largest peak-to-trough decline in the fund's entire history — a critical risk metric that tells you the worst case an investor would have experienced if they had the worst possible entry timing. Recovery time (how long to get back to the previous peak) is equally important.
Drawdown is the answer to: 'How much could I have lost from the best point, in the worst scenario?' If a fund's MDD is 50%, an investor who invested at the peak would have seen their value halve before recovering. Understanding MDD helps you decide whether you can emotionally handle that scenario. A fund with a 60% MDD requires incredible patience — most investors sell at the bottom and lock in permanent losses.
Track NAV from peak to lowest subsequent point before a new peak is made.
Maximum Drawdown = (Peak NAV − Trough NAV) ÷ Peak NAV × 100.
Recovery period = time from trough to when NAV reaches the previous peak again.
Nifty 50 historical max drawdown: ~58% during 2008 Global Financial Crisis.
Small-cap indices: max drawdown of 60–70% during major crashes.