How to Calculate Mutual Fund Returns
Mutual fund returns can be measured in multiple ways — absolute returns, CAGR, and XIRR. Each method serves a different purpose.
CAGR Formula (Lump Sum Returns)
CAGR = (Final Value / Initial Value)^(1/n) - 1
Where:
- CAGR = Compound Annual Growth Rate
- Final Value = Current or redemption value
- Initial Value = Amount invested
- n = Number of years
Step-by-Step:
- 1
Note investment details
Initial investment, current value, and time period.
- 2
Choose the right metric
Use absolute return for < 1 year, CAGR for lump sum, XIRR for SIP.
- 3
Apply the formula
Calculate returns using the appropriate method.
Worked Examples:
₹1L invested, now worth ₹2.5L after 5 years
Invested: ₹1,00,000Current Value: ₹2,50,000Period: 5 years
Result: CAGR = 20.1%
CAGR = (250000/100000)^(1/5) - 1 = 0.201 = 20.1%