A standard deviation is a statistical tool measuring the deviation of a data set from its mean. In a mutual fund, the standard deviation is used to measure the dispersion of the actual return from a mutual fund from its expected return. Let's take an example of a mutual fund with an average return of 10% and a standard deviation of 4%. This means the fund's return may range between 6% and 14%. And the investor can expect the fund's return to be anywhere between 6% and 14%.