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Different Types of Returns in Mutual Funds
A mutual fund is a financial vehicle where a pool of money is collected from investors to invest in bonds, money market instruments, stocks, and other assets. Depending on the investment objectives and type of returns and securities, a mutual fund can belong to several categories.
Keep reading this article to learn more about mutual fund returns and their types and benefits.
Table of Contents
What are Mutual Fund Returns?
Types of Mutual Fund Returns in India
1. Absolute Returns
Absolute Returns refer to the amount by which a mutual fund scheme has increased or decreased in a certain period. Absolute returns can be positive or negative.Let us take the example of Mr Ravi, who invested ₹ 1.5 lakhs in a mutual fund scheme. The present value of the invested amount is ₹ 2.5 lakhs. You can calculate the absolute return for Mr Ravi using the following formula:
2. Annualised Returns
Annualised Returns refer to the amount by which the invested money has grown per annum
One can calculate this type of mutual fund return using the following formula:
Annualised Return = ((1+ Absolute Return) ^ (365/ number of years)) – 1
3. Compound Annual Growth Rate
Compound Annual Growth Rate, abbreviated as CAGR, is the rate of return by which the investment should grow from the initial investment value to its maturity value.
CAGR is computable using the following formula:
Compound Annual Growth Rate = ((Final Value/ Initial Value) ^ (1/ number of years)) – 1
Let us understand this with the help of an example.
Mr Ram invested ₹10,000 in a mutual fund scheme, and the final value is ₹14,000 over 2 years.
4. Trailing Returns
Trailing returns are the type of mutual fund returns that show the performance of a mutual fund over a specific period.
Individuals can calculate trailing returns using this formula:
Trailing Returns = (Current Net Asset Value / Net Asset Value at the beginning of the trailing period) ^ (1/ Trailing Period) – 1
Benefits of Each Type of Return in Mutual Funds
The table below shows the key benefits of different mutual fund returns in India.
An investor needs to know his/her investment objective and individual goal before investing money in any mutual fund. Knowledge about the expected returns helps investors get an idea about the scheme's performance over certain time periods.
Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.
We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.
FAQs about Types of Mutual Fund Returns
When are absolute returns calculated?
When are annualised returns useful?
What are the types of returns in mutual funds?
The following are the types of returns in mutual funds:
- Absolute Returns
- Annualised Returns
- Trailing Returns
- Compounded Annual Growth Rate
Other Important Articles about Mutual Funds
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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