Alpha measures how much extra return a fund manager has generated compared to the fund's benchmark index, after adjusting for the risk taken to achieve it. In simple terms, it answers the question: is this fund manager actually adding value through their stock-picking skill, or would you have done just as well putting your money in a plain index fund tracking the same market?
A positive alpha, say +2%, means the fund beat its benchmark by 2 percentage points on a risk-adjusted basis — a sign of genuine outperformance. A negative alpha means the fund underperformed despite the risk taken. Alpha is mainly relevant for actively managed funds; for index funds, which simply mirror the market, alpha is expected to be close to zero, since matching the benchmark is the entire goal, not beating it.