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

As it suggests annualized return is returns on an annualized basis while absolute return the the amount of return on your money

Annualized return is calculated in excel using the XIRR function which is also called internal rate of return, but if you calculate XIRR for investments below 365 days it might give you a wrong picture of your investment

Say your investment has grown from 10000 to 10100 in 30 days, if you calculate it using the XIRR function the annualized return will be 12.43%, but actually you have earned just 1 percent, so for investment below a year it is advisable to calculate absolute return

Likewise if your investment has grown from 10000 to 11000 in 500 days, the absolute return will be 10%, but if you calculate it on annualized basis it will 9.09% which is correct

this is the standard practice of Mutual fund industry.

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