POSTED BY July 9, 2012 3:28 pm COMMENTS (4)ON
I am a bit confused on the terms – annualised return and absolute return used in Mutual funds.
The reason for the above is that I was just going through the fund performance of HDFC Balanced fund in moneycontrol and found that certain returns that are stated are not clear to me.
To give you an example:
Annualised return is stated as:
1 year : 0.9
2 year : 7.9
3 year : 18.2
5 year : 12.3
Absolute return is stated as:
2011 : -10.8
2010 : 24.5
2009 : 71.7
2008 : -36.9
2007 : 26.8
By doubt is if the annualised return has never been in negative then how come absolute return for 2011 and 2008 is stated in negative.
Request you to please clarify my doubt.
(Note : For this example I am considering say a lump sum investment of 1 lakh in Jan 2007)
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4 replies on this article “Annualised return Vs Absolute return”
Dear Saurav, the annualized returns are the compounded returns on yly basis where as the absolute returns are for that specific calender year only.
Thanks for your reply.
I have 2 more doubts.
1) Is annualised return same as CAGR(Compounded annual growth rate) and every site that displays annualised return is basically displaying CAGR?
2) Absolute return as per you is refering to the return for that specific calender year. But in some documents while explaining absolute return, they actually mean the return since the time the investment was made.
i.e Absolute return = (Current market value – cost of investment) * 100 / cost of investment
So, absolute return is per calender year basis or since the time the investment was made?
Dear Saurav, here are the answers for your queries.
1. Yes the annualized rates are actually CAGR.
2. I answered on the basis of the data input by you, it was not clear that it’s for 1 calender or from a fixed point. In case of from fixed point, the returns ‘ll be actual return from point A to B.
Thanks a lot Ashal.