The information ratio measures the excess return and risk relative to a specific benchmark. It is essentially used to measure the performance of the mutual fund's active manager. Through the use of the information ratio, an investor can tell by how much the active manager could outperform the benchmark, and it also indicates the length of time that the active manager could outperform the benchmark. A low information ratio is a signal that a mutual fund is underperforming and should not be seen as a viable investment. A higher information ratio means that the active manager had a better ability to outperform the benchmark – and for a longer period of time.

If a mutual fund has a low information ratio, it means that the active manager of that mutual fund either is unable to produce excess or abnormal returns or has been unable to produce excess returns for a sustained period of time. If the information ratio is low enough, it means that the manager was unable to produce excess returns for any amount of time.

If the information ratio of a mutual fund is negative, it means that the mutual fund was unable to produce any excess returns at all. An information ratio of less than 0.4 means that the mutual fund could not produce excess returns for a sufficiently long time for the mutual fund to be a good investment. An investor should not invest in a mutual fund with an information ratio below 0.4. If the information ratio is between 0.4 and 0.6, it is considered to be a good investment, and an information ratio between 0.61 and 1 is considered to be a great investment.