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Economic conditions and the performance of the market influence the return on investment. Return types along with CAGR can be used to evaluate a fund’s performance. Types of mutual fund returns are

  • Absolute Return
  • Annual Return
  • Total Return
  • Annualized Return
  • Trailing Return

Absolute Return

Absolute Return or Point-to-Point return calculate the growth in investment, in terms of percentage. It is used for calculating the return of a mutual funds with a tenure less than 1 year. If the period is more than one year, then annualized returns are used.

 Absolute Return = ((EV - BV) / BV) x 100

where EV is ending value of investment, BV is beginning value of investment.

Annual Return

Annual return is used to find the return of mutual fund over a period of one year. To calculate annual return, determine the initial price of the investment at the beginning of the holding period and the price of the investment at the end of the one-year period. Formula for finding annual return is

Annual Return = ((EV - BV) / BV) x 100

where EV is ending value of investment, BV is beginning value of investment. It shows the total change in price over the one-year period, the calculation does not take into account the volatility of the stock price over the time horizon.

Total Return

It refers to the actual returns accrued from the investment. Total return is based on the full investment holding period regardless of whether it is shorter or longer than one year. It includes dividends as well as capital gains.

Total return = ((Ending investment price − Initial investment price)​ / Initial investment price) * 100

For example, assume that a investor has purchased 50 units of a mutual fund having NAV Rs.2. After a year, the NAV of the MF scheme increases to Rs.4. Current value of investment is Rs.200 (50 units x Rs.4 per unit), which means capital gain shall be Rs.100. Now, in case the scheme declared dividends of Re.1 per unit over the course of the year, the overall dividend paid to the investor shall be Rs.50 (50 units x Rs.1 per unit). Therefore, total return is 150% (((200 + 50 – 100) / 100 ) * 100)

Annualized Return