Difference between absolute and annualised returns | Value Research Here’s a short and simple explanation of the two types of returns in mutual funds
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Difference between absolute and annualised returns

Here's a short and simple explanation of the two types of returns in mutual funds

Returns in mutual funds can be described in two different ways: absolute and annualised. As an investor, you should be familiar with the two.

Absolute returns measure the overall growth in the investment over a specific period of time. For example, if your investment has grown from Rs 1 lakh to Rs 1.5 lakh over a span of two years, the absolute return is 50 per cent. The investment has grown by 50 per cent over two years.

On the other hand, annualised return is precisely the annual rate at which the investment has grown over a specific period. For this, we usually take Compounded Annual Growth Rate (CAGR), so that the impact of compounding is also considered.

Continuing the above example, the annualised return of the same investment would be 22.47 per cent. This signifies that the investment has grown at an annual rate of 22.47 per cent over the span of two years.

Suggested read: What do the various types of fund returns mean?


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