Formula and calculation explained.Mutual Fund investments are subject to market risks. Please read all scheme related documents carefully before investing. Past performance is not an indicator of future returns.The same fund which is one of the top funds in tax saving category of mutual funds has the following annualized performance:Annualized return = ((1 + Absolute Rate of Return) ^ (1/no. of years)) 1Albert Einstein hasnt simply said that compound interest is the 8thwonder of the world. Compounding can do wonders to your money. 12% annualized return can double your money in 6 years. And15% annualized return can double your money in less than 5 years!5 year 22.66% annualized return mean that money invested 5 years ago in the fund has grown 22.66% every year,Annualized Return Meaning,not 22.66% overall but instead 177% overall.This is the summarized interpretation of annualized performance. This is the principle of compounding at work growing ones investment over the investment period!Mutual funds are the most lucrative forms of investment for defensive investors. They come for every type of financial goal []Mutual funds return on an investmentis reported on an annualized basis. Andmutual fund returnsfluctuate across years. This is the reason why 1-year returns may appear higher than 3 years returns.Absolute returns = ((Present NAV Initial NAV)/ Initial NAV) *1001yr: 18.16% annualized return = Rs 1 lakh invested in thisfund1 year ago has come to a final value of Rs 1.18 lakh today

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Return is the yield that an investment generates over a period of time. It is the percentage increase or decrease []

Using it 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.

It is the amount of money the investment has earned for the investor per annum. You can also calculate it as a percentage value for an annualized rateof return. CAGR is compounding of returns earned over a period of time. It provides a snapshot of an investments performance but doesnt give investors any indication about the volatility.

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 onmutual fundsare expressed in 2 different ways, viz, absolute and annualized. The most popular one being theannualized returns or CAGR(Compounded Annual Growth Rate).

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 beginning value NAV and endingNAV(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.

Annualized return = ((1 + Absolute Rate of Return) ^ (365/no. of days)) 1

A mutual fund fact sheet shows the fund facts and the most important to us as investors are its return. The return on an investmentis usually given for 1-month, 3-month, 6-month, 1-year, 3-year, 5- year and so on.

3yr: 11.98% annualized return = absolute returns of 40% in 3 years = Rs 1 lakh invested in this fund 3 years ago has come to a final value of Rs 1.40 lakh today

5yr: 22.66% annualized return = absolute returns of 177% in the last 5 years = Rs 1 lakh invested in this fund 5 years ago has come to a final value of Rs 2.77 lakh today.

The returns for 1 to 3 months are given in an absolute basis and the returns from 1 year and above are given in an absolute basis. So when you see a 5% under the 3-month column, it means the fund has given 5% in 3 months time. 12% annualized return in 3 years means 12% return earned every year for the past three years and not 12% total return in 3 years.

The above table shows the NAV of an ELSS fund, (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 percentage show how much the investment has grown from the initial date. On the other hand, the annualized percentage shows 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 over the investment period. Annualized return normalizes the absolute return and lets you know the growth on an investment over a given period of time.

Annualized Return Meaning, Formula and calculation explained.