Have you invested in the best mutual fund scheme, saved on tax and are now looking to assess your annual mutual fund performance? The best way to do that is to calculate the return that your investment is likely to generate over time. Mutual fund returns can be determined as the percentage rise or fall in the value of the investment that period of time.

The mutual fund returns for a predetermined period is calculated as:

Current NAV – initial NAV÷ Initial NAV X 100 X No. of days, months or years

What does NAV stand for? It is simply the market value per share held by the mutual fund scheme. Thus, if you want to want to purchase shares of a mutual fund, you will buy at the NAV. According to Securities and Exchange Board of India (SEBI), NAV is what determines any mutual fund performance.

  1. Why is the ‘absolute return’ important?

Have you calculated your mutual fund returns? Now that you know the average returns on your mutual fund investment, it makes sense to understand the returns. This is where a point-to-point or absolute return can help you. It allows you to calculate mutual fund returns that a scheme achieves over a period of time. How? By measuring the percentage appreciation or depreciation in the value of the NAV over a period time. The holding time plays no role in calculating the absolute return. Therefore, if the initial NAV of the mutual fund scheme you invested in was, say, Rs. 500 and now after 3 years, it is Rs. 1,000, the absolute return comes to 100 per cent!

In simple maths, here’s how you can calculate a point-to-point or absolute return:

Absolute return = (current NAV – initial NAV)/ initial NAV x 100

Thus, if you’ve invested in a mutual fund scheme at Rs.15 per unit and for three years, the net asset value appreciates to Rs.20 per unit. This comes to an absolute return of 33.33%:
(20-15) X 100/15 = 33.33%

  1. Why take CAGR into account?

Want to calculate mutual fund returns for a time frame that is beyond the one year of your investment? CAGR is a better way to depict returns when the time period is more than a year. It is a smoothened rate (it smoothens out the volatility in returns) because it shows how the investment would have increased if it had grown at a steady rate, on an annually compounded basis. In simple words, CAGR is the annualized returns on mutual combined with the effect of compounding.

CAGR is calculated as follows:

(Current NAV/ initial NAV) ^ (1/number of years) or (365/number of days) – 1

Let’s say you had invested Rs.1, 500 in a mutual fund scheme two years ago at an NAV of Rs.15. Currently, the NAV is Rs.25.

This is how the formula will work:

So it will be: (((25/15)^(1/2))-1)= 29.09%

  1. How to calculate mutual fund returns on SIP?

Have you invested in mutual funds that follow the SIP or Systematic Investment Plan? An SIP requires you to keep investing regularly over a long period and allows you to get back the maturity amount upon exit. And because the money is invested over different periods of time, the absolute return formula would not work. In such a case, calculating the XIRR is a better way to depict returns. XIRR is a function in Excel that you may use for calculating internal rate of yield or annualized return for a schedule of investments occurring at irregular intervals.
To calculate mutual fund returns on SIP, use the XIRR function in MS Excel in this manner:



Enter the date and the investment value



Enter the current value and the current date

XIRR formula



Important note: Since the XIRR formula calculates mutual fund return on cash flows, remember to enter the SIP figure as a negative figure as it’s an outflow.

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