Mutual Fund Returns in Terms of CAGR, XIRR & Absolute Returns

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difference between cagr

Investors can compare the CAGR to evaluate how well one stock performed against other stocks in a peer group or against a market index. The CAGR can also be used to compare the historical returns of stocks to bonds or a savings account. To determine what your annual return was for the period, you need to calculate the CAGR. CMGR calculates average monthly growth, similar to CAGR, which calculates average annual growth rate. The formula for calculating CMGR is the same; simply replace the number of years with months. The absolute returns calculation does not consider the period or tenure of the investment during which the returns have been earned.


It is also important to read the fine print to understand the time period that applies. Advertisements can tout a fund’s 20% CAGR in bold type, but the time period used may be from the peak of the last bubble, which has no bearing on the most recent performance. For example, the standard deviation of a savings account is zero because the annual rate is the expected rate of return (assuming you don’t deposit or withdraw any money). In contrast, a stock’s price can vary significantly from its average return, thus causing a higher standard deviation. The standard deviation of a stock is generally greater than the savings account or a bond held to maturity. The table below illustrates the annual returns, CAGR, and the average annual return of this hypothetical portfolio.

How to calculate CAGR?

The Compound Annual Growth Rate formula is used in this application’s calculations . For example, if you have a mutual fund that has appreciated over time, you can use the calculator to determine the rate of return on your investment. The CAGR return calculator will provide you with an annual growth rate that you can compare to a benchmark return.

Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. ClearTax can also help you in getting your business registered for Goods & Services Tax Law. Those interested in learning more about CAGR and other financial topics may want to consider enrolling in one of the best investing courses currently available. The total number of days that the investment was held was 1,924 days. To calculate the number of years, divide the total number of days by 365 (1,924/365), which equals 5.271 years.

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Other banking stocks rise like HDFC Bank by 9% ICICI Bank by 6.5%, Punjab National Bank by 5% and Banking Index by 6%. It means SBI has given better returns as compared to Banking Index and among its peers better than PNB but less than HDFC Bank and ICICI bank. Peer return helps in selection of investment within a particular sector or sub-group of an asset class such as banking stock in above example.

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A simple method for calculating a risk-adjusted CAGR is to multiply the CAGR by one minus the investment’s standard deviation. If the standard deviation (i.e., its risk) is zero, then the risk-adjusted CAGR is unaffected. The larger the standard deviation, the lower the risk-adjusted CAGR will be. But generally speaking, investors will evaluate this by thinking about their opportunity cost as well as the riskiness of the investment. For example, if a company grew by 25% in an industry with an average CAGR closer to 30%, then its results might seem lackluster by comparison.

For example, Big-Sale’s customer satisfaction CAGR might not seem so low compared with SuperFast Cable’s customer satisfaction CAGR of -6.31% during the same period. 123movies If you love watching movies online for free, moviebox pro apk is one of the best in the market. Suppose you made a SIP of Rs.10,000 every month for eight months into Scheme A starting from April 01, 2020, to Nov 01, 2020. This website is using a security service to protect itself from online attacks.

Even if you make haphazard investments at different time periods, XIRR would give the correct returns for such investments. So, CAGR shows that your investment of Rs. 5 lakh earned an average annual return of 6.96% for five years, amounting to Rs. 7 lakh at the end of your investment horizon. The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story. Investors can analyze investment alternatives by comparing their CAGRs from identical time periods. Investors, however, also need to evaluate the relative investment risk.

However, absolute return does not show you the true growth of the investment. You must calculate the CAGR, which shows the annual growth rate of the investment over a while. Use the ClearTax CAGR Calculator to calculate the true value of your investments. The compounded annual growth rate is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. When an investment or loan is compounding, the CAGR shows the average growth rate over time.

CAGR vs. IRR: An Overview

However, while using relative return to assess the performance of your mutual fund investment, it would be prudent to compare it against an appropriate benchmark. Selecting an appropriate benchmark is necessary to avoid misinterpretation of results. If you want to calculate the annual positive return rate generated by an investment, CAGR is a popular method. Using CAGR, you can find out the year-on-year rate of return on investment.


The compound annual growth rate is calculated over a set of time intervals . This could be a retail investor calculating the return on a stock or a venture capitalist calculating the growth rate of a potential investment. The average annual growth rate is the arithmetic mean of a series of growth rates that measures the average increase in the value of an investment or asset over a year. CAGR measures your investments’ average annual growth over a given period. It shows you the average rate of return on your investments over a year. CAGR is a helpful tool for investors because it precisely measures investment growth over time.

What are Rolling Returns?

Now, at the end of 5 years, on 22nd July 2020, he redeemed his investments and received Rs. 1,51,000. Also, for a better understanding of all return types, we will take an example of Axis Bluechip Fund. Has grown from the beginning to ending value over a period of time. Financial modeling best practices require calculations to be transparent and auditable. The trouble with piling all of the calculations into a formula is that you can’t easily see what numbers go where, or what numbers are user inputs or hard-coded.

  • Taking the same example, suppose you have an investment tenure of two years.
  • Unlike the absolute return, CAGR takes the time value of money into the account.
  • To compare the performance and risk characteristics between investment alternatives, investors can use a risk-adjusted CAGR.
  • However, if the pattern of payment is irregular, the Extended Internal Rate of Return is the formula of choice.
  • Now that both the options are compared, you can see that option two is earning better returns than the first option.

You must do thorough research before deciding to take the plunge. The sooner you grow your principal, the better is the absolute return vs cagring it earns. With SIP, it is the cost averaging effect of the units purchased that enables you to earn faster and better returns.

MyMoneySage simplifies investing for individuals and amplifies business growth for Registered Investment Advisers by leveraging Artificial intelligence and machine learning. The AI of the machine plus the intellect of the human advisor enables comprehensive & client-centric advice at a fraction of the cost of a conventional adviser. If you need to calculate the IRR, the payments have to be made or received in equal duration. However, if the pattern of payment is irregular, the Extended Internal Rate of Return is the formula of choice. Both IRR and XIRR calculation are also available in Microsoft Excel as a function. This could be viewed as a great investment if you were smart enough to buy its stock at $5 and one year later sell it at $22.

For example, imagine an investor is comparing the performance of two uncorrelated investments. We can see that on an annual basis, the year-to-year growth rates of the investment portfolio were quite different as shown in the parentheses. CAGR is a popular financial ratio that allows you to compare the returns from various investments. You only need to enter the initial value, the final deal, and desired investment period, and the online CAGR calculator will take care of the rest. Even if you are looking for a Systematic Investment Plan to invest in, there are multiple options available in the market. You need to compare these options based on the generalized CAGR wherein each installment is considered as a separate investment to derive at an overall annualized return percent.

Risk Adjusted Returns

Its performance over the next 5 years has been tabulated below. In other words, relative return helps to determine the value added by the fund manager. An ideal portfolio is one which outperforms the benchmark during bull runs and makes fewer losses when the benchmark tends southwards. As a prudent investor, now it’s time to know the relevance of each one of these returns to make comparisons and interpretations in a better and accurate manner. Let us look at the common types of returns and how they impact your investments. XIRR is applicable in the case of periodic investments when the duration of each instalment varies.

But majority of investors prefer investing via systematic investment plans . One, through CAGR you don’t get a clear picture of the volatility. It can trick the investor into believing that their investments have had or will have a steady linear growth when the underlying value of the investment can vary significantly every year.

Full BioSuzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. CAs, experts and businesses can get GST ready with ClearTax GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner.

A long-term CAGR enables investors to assess the future potential of an investment, as it eliminates the impact of any market shocks occurring in the short term. To elaborate, if you were given the option to either invest in Fund A, which earns 12% or Fund B, which returns 8%, would fund A necessarily be a good choice under all circumstances? That will depend on how long it took to generate such returns—something that a CAGR calculation can help clarify. In this case, the investment has returned 79%, but we are unclear about how long it took to generate such high returns. Nor does this metric provide any insight into the future growth potential of this investment.

  • The internal rate of return also measures investment performance.
  • So, in SIPs, each instalment is invested for a month less than the previous.
  • A challenge here is gauging investments correctly to understand the earnings potential.
  • The company’s fundamental parameters are tested using various parameters related to inventory days, employee cost, power cost, taxation etc.
  • The valuation of the company rose and fell in the five year period.
  • The annual return is the compound average rate of return for a stock, fund or asset per year over a period of time.

The internal rate of return also measures investment performance. While CAGR is easier to calculate, IRR can cope with more complicated situations. Instead, if you could know how it has grown annually, then things may get simpler. This is where CAGR will help by providing you with a single annual growth rate. Apart from this, it also brings compound interest to the picture. Most investment avenues, including mutual funds, use compound interest to compute returns.

XIRR is nothing but the aggregated CAGR of each instalment of investment. So, if you invest in a SIP for 12 months, XIRR would be the CAGR of the last instalment + the CAGR of the second last instalment and so on. In finance, a return is the profit or loss derived from investing or saving. ClearTax offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. ClearTax serves 2.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. You then fill the final value of the investment and the number of years of the investment.

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Annualised return is an extrapolated return for the entire year. They usually employ CAGR for investment periods ranging from three to seven years. If the tenure is more than, say, ten years, then the CAGR may hide the sub-trends in between. Sometimes, two investments may reflect the same CAGR, with one being more lucrative than the other. This could be because the growth was faster in the initial year for one, while the growth happened in the last year for the other.

Suppose your invest 5,000 , 10,000, 6,000, 4,000 and 6,500 in 5 yrs and Get 53,000 at the end of 5 yrs , what is your Return ? Or you invested Rs 10,000 in the stock which gave 10% annual dividends. The return that is used in such cases is IRR or Internal Rate of Return.Its used to calculate the returns given some amount at a fixed interval . The only thing which matters is that there should be equal distance between two installments.

You may find CAGR to be a popular financial ratio which helps you compare the return from different investments. You may consider XIRR for multiple investments made with the same SIP over the investment tenure. On ETMONEY, you can see the SIP returns of each fund for whatever amount and duration you wish on that fund’s scheme page. Also, you can see SIP returns of all funds in a category at one place in the category listing page. To illustrate, let’s expand on the previous example of a hypothetical initial investment of Rs. 1,00,000.

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