Mutual Funds are one of the best instruments in the current era that are giving returns, which are superior to inflation and also any other instruments such as fixed income securities and the likes. Also, when it comes to investing, people tend to opt for the Systematic Investment Plan (SIP) as it helps accumulate a significant amount of wealth while remaining disciplined. While considering returns, there are different tools to understand the suitability of the products to an investor.

Here, Tarrakki helps how to select best mutual funds for investment and also seek to discuss the different **types of returns** that apply to mutual funds.

Read on!

**Different Types of Returns
& Mutual Fund Return Calculator**

**Absolute
Returns** – Also known as point-to-point returns, absolute returns is nothing
but the final increase or decrease in the value of the total investment. The
performances are represented in percentage. Also, the time taken for the change
is not considered in the returns.

Generally, the absolute returns
method is used for computing the returns for mutual funds with tenure for less
than one year. Also, if the period of investment is more than one year,
ideally, an investor calculates the annualized return with the help of **mutual fund return calculator** (discussed next).

### Example of calculating absolute returns in mutual Fund –

Assume you buy 100 units of a fund at Rs 10 at the time of NFO. In 9 months, the investor sells the units for Rs 12 per unit. In this case, the returns are –

= {(Rs 12 x 100) – (Rs 10 x 100)}/ (Rs 10 x 100)

= 200/1000

= 20%

**Annualized
Return** – Annualized returns measure the growth in value on an annual basis.
For example, if you made an investment of Rs.1 lakh and redeemed Rs 1.9 lakhs
in 3 years, your absolute returns are –

Rs 1.9 Lakhs – Rs 1 Lakhs)/ Rs 1 Lakhs

= Rs 0.9 Lakhs / Rs 1 Lakhs

= 90%

But, remember this 90% is accumulated in 3 years. So, if you need to compute returns of every year, how would you compute?

The formula is = (FV/IV) ^ (1/3)-1

= (1.9 Lakhs/1 Lakh) ^ (1/3)-1

= 23.8%

If you see, the annualized returns reduce below (90/3=30%). This is due to the compounding effect.

**Total
Return** – Total returns are the actual returns accrued from the investment.
It includes capital gains along with dividends. For example, if you have
invested Rs 1 Lakh in a fund and bought 1000 units at Rs 100 each. The NAV
increases to Rs 112 after a year, but at the same time, you received a dividend
of Rs 10 per unit during the year.

In this case, your total returns would be =

= Capital gains + Dividend

= (Rs 112-Rs 100) x 1000 + (Rs 10×1000)

= Rs 12000+10000

= Rs 22000

This makes the total returns as 22000/100000 = 22% for the year.

**Trailing
Return** – Trailing returns is the annualized return over a period that ends
on a particular day. For example, if you have to calculate trailing three years
return as on Sep 30, 2019, you will take from Oct 1, 2016, until Sep 30, 2019.

The formula to calculate the trailing return is –

= (Today’s NAV / NAV at the beginning of the trailing period) ^ (1/Trailing Period) – 1.

In the above example, if the NAV on Sep 30, 2019, was Rs 90 and three years ago it was Rs 40, the returns would be =

= (90/40) ^ (1/3)-1

= 31.03%

**Point
to Point Return** – P2P return is the annualized returns between two points
of time. All you need to do is compute the returns between two points.

Assume the NAV on 1 Jan 2019 is Rs 20 and the NAV on 31 Dec 2019 is Rs 29 then the returns would be –

= (29-20)/20

= 45%annualized

**Rolling
Returns** – Rolling returns refer to the schemes’ annualized returns over
time. The period could be daily, weekly, or monthly and is an excellent tool to
compare with the benchmark, how a fund is performing.

Compound Annual Growth Rate (CAGR, as it is known in general) is commonly used to compute the returns from a fund that has more than a one-year holding period. Under this method of computing returns, the formula is –

CAGR = [(Current Net Asset Value / Beginning Net Asset Value) ^ (1/number of years)]-1

To understand and use the **mutual fund returns** effectively, we
recommend you to download and install our Tarrakki app on iOS and Android.
This shall help you get a hang on how to compare a fund with the category
average and benchmark. Should you need any other information or assistance,
feel free to drop in a line to us at **info@tarrakki.com**,
and we shall be glad to assist.

**Also check: **Types of Mutual Funds in India