Return is the yield that an investment generates over a period of time. It is the percentage increase or decrease in the value of the investment in that period. Returns on mutual funds are expressed in three different ways, viz, absolute and annualized. The most popular one being the annualized returns or CAGR (Compounded Annual Growth Rate).

A mutual fund fact sheet shows the fund facts and the most important to us as investors are its return. The returns are usually given for 1-month, 3-month, 6-month, 1-year, 3-year, 5- year and so on. The returns for 1 to 3 months is given in absolute basis and the returns from 1 year and above are given in absolute basis. So when you see a 5% under the 3-month column, it means the fund has given 5% in 3 months time. A 12% returns against 3-years is 12% returns earned every year for the past three years and not 12% total return earned in the span of 3 years. This is because the returns are given on an annualized basis.

Albert Einstein hasnt simply said that compound interest is the 8th wonder of the world. Compounding can do wonders to your money. A 12% annualized return can double your money in 6 years, 1 month. And a 15% return can double your money in 4 years, 11 months. Below is the table that shows how long different interest rates take to double your money.

Absolute returns, also known as point-to-point returns, calculate the simple returns on initial investment. To calculate this return all one needs is the initial and ending NAV (present NAV). In this method, the duration of holding the fund is not important. One usually uses absolute returns to calculate returns for a period of less than one year.

The formula for calculating the absolute returns = ((Present NAV Initial NAV)/ Initial NAV) *100

Annualized return is the amount of money the investment has earned for the investor per annum. CAGR is compounding of returns earned over a period of time. It provides a snapshot of the of an investments performance but doesnt give investors any indication about the volatility. Using annualized returns gives a clearer picture when comparing various mutual funds that have traded over different periods of time. However, this is applicable only if you re-invest your gains every year.

The formula for calculating annualized returns = ((1 + Absolute Rate of Return) ^ (365/no. of days)) 1

The above table shows the NAV ofAditya Birla Sun Life Tax Relief 96,(which has been taken only for the purpose of illustration).The returns up to 1 year are the same in the case of absolute and annualized. The returns after 1 year are different. While the absolute returns show how much the investment has grown from the initial date, annualized returns show how much the fund grew annually to reach that current return. This doesnt mean the fund grew at a certain rate every year. Its just the average growth of the fund year on year. Annualized return normalizes the absolute return and lets you know the returns over a given period of time.

sLdiupGZZSoPgnnVvZszMNoxZMrwqOiejvddLXbZGuydneAgBbKlJJiNXttjTQsQlatnweBWK-xzsohwEnlOyQuxvrKoXIpuTOeUGiNqHgsbsacgsJeaPXkQdoSaTomCIRfrPoyyMpGtFoegLKFTZvjEkxFxQRSKcFfdUvhryaaMcnvgMOCtej

The feedback you provide will help us show you more relevant content in the future.

What is the difference between annualized returns and cagr?

What is annualised return and absolute return with regards to mutual funds?

What is the difference between weighted average absolute return and overall return in a mutual fund portfolio?

What is the difference between annualised return and absolute return and how to calculate both?

Can you explain the different returns mentioned in the discussions of mutual funds like absolute return, annualized return, CAGR, trailing ret…

Whats the difference between a mutual funds absolute profit and internal rate of return? Which one is more important?

What are Top 3 mutual fund to invest with 1520% annual return?

How much returns can any investor expect or perceive from mutual funds? What should one keep in mind regarding mutual fund returns?

How much are the returns per month in mutual funds?

Is there a type of mutual funds giving fixed returns?

What are the returns for a mutual fund agent?

What are the high return mutual funds in the US?

How does a return from the mutual funds work?

Is mutual funds investment and returns a long term process?

Does a mutual fund return yearly or do we have to sell to get returns?

How do I access the best returns mutual funds?

Why invest in mutual funds when Index funds perform just as well if not better with practically no fees?

What is the difference between annualized returns and cagr?

What is annualised return and absolute return with regards to mutual funds?

What is the difference between weighted average absolute return and overall return in a mutual fund portfolio?

What is the difference between annualised return and absolute return and how to calculate both?

Can you explain the different returns mentioned in the discussions of mutual funds like absolute return, annualized return, CAGR, trailing ret…

Whats the difference between a mutual funds absolute profit and internal rate of return? Which one is more important?

What are Top 3 mutual fund to invest with 1520% annual return?

How much returns can any investor expect or perceive from mutual funds? What should one keep in mind regarding mutual fund returns?

How much are the returns per month in mutual funds?