### what is annualized rate of returns

POSTED BY ON October 26, 2010 1:50 am COMMENTS (4)

Respected sir,

i want to know that what does it means when we say that annualized rate of return of a fund is 35% ?.

Does it mean that yearly return(average) during a period is 35%?

I want to increase the contribution in HDFC Taxsaver G From 1000/- To 2500/- permonth & also in HDFC Equity G from 1000/ – to 3500/- permonth. Is it wise? or should i opt for other scheme for making additional investment.

I want to invest for minimum of 15 years.And i dont beleave that anybody has timed the market correctly uptill now, only route to success is descipline and long term.

## 4 replies on this article “what is annualized rate of returns”

1. Nitin Gupta says:

Hi Manish,

i was seeing interest rate on fixed deposites at site of kotak bank.
link is mentioned below. i see whenever tenure is more than 6 months, Annualised Yield is always more than simple interest rate. suppose is put 10000 in the FD, what interest rate would be used in your above formula.

https://www.kotak.com/bank/personal-banking/deposits/term-deposits/interest-rates-for-term-deposits.html

2. Naveen

Annualised return means a return which you had got year after year , compunded every year.

When we say that you get 10% return from some product on CAGR basis , then if you invest 10000 in that , then in 10 yrs it becomes 25937

>>> 10000 * (1+ .10) ^ 10
25937.424601000024

Which means for the first year you get 10000 + 1000 (10%) =- 11,000 , now you capital becomes 11k for 2nd year and then you get 10% on 11k = 1100 , and your total becomes 11k + 1.1k =- 12.1k and so on ..

So thats 10% CAGR return

Manish

3. bharat shah says:

i think, there could be some misundersting from the answer. annulised rate of return is not simple average of annual returns of the period, but it is compound rate of return during the period, compounded yearly.

4. You’re right in your statement of annualized rate of return. As far as investing in mutual funds, I suggest you to diversify your portfolio. Instead of increasing contribution in HDFC tax saver, invest in Birla Sunlife Tax Relief 96, if your purpose is to get benefit of sec80c.

Otherwise, you can invest in Reliance Regular Savings Fund – Equity, HDFC Equity, or IDFC Premier Equity Fund.