Different Types of Returns in Mutual Funds

types of returns in mutual funds in india

A mutual fund is a financial vehicle where a pool of money is collected from investors to invest in bonds, money market instruments, stocks, and other assets. Depending on the investment objectives and type of returns and securities, a mutual fund can belong to several categories.

Keep reading this article to learn more about mutual fund returns and their types and benefits.

Quick Summary

Tips

Absolute return is the actual gain/loss on your investment over a period, regardless of duration. For example, ₹1.5 lakh growing to ₹2.5 lakh equates to a 66.7% absolute return.
Annualized return is the yearly compounded rate over a holding period, useful for comparing investments across durations.
CAGR shows the annualized growth rate from start to end value, ideal for comparing investments over different timeframes.
Trailing returns reflect past performance over fixed periods ending on a specific date (e.g., past 1, 3, or 5 year returns), offering a snapshot of recent trends.
Use CAGR or annualized return for long-term comparisons, trailing or point-to-point returns for recent performance, and rolling returns to assess consistency over time.

What are Mutual Fund Returns?

Mutual fund returns are those returns that depend on the performance of the fund. Individuals can calculate it by evaluating the change in final investment value from the initial investment value over a particular period.

Types of Mutual Fund Returns in India

There are many types of mutual fund returns. Some of these are:

1. Absolute Returns

Absolute Returns refer to the amount by which a mutual fund scheme has increased or decreased in a certain period. Absolute returns can be positive or negative.

Let us take the example of Mr Ravi, who invested ₹ 1.5 lakhs in a mutual fund scheme. The present value of the invested amount is ₹ 2.5 lakhs. You can calculate the absolute return for Mr Ravi using the following formula:

Particulars	Amount
Final Investment Value	₹2,50,000
Initial Investment Value	₹1,50,000
Absolute Return	66.66%

2. Annualised Returns

Annualised Returns refer to the amount by which the invested money has grown per annum

One can calculate this type of mutual fund return using the following formula:

Annualised Return = ((1+ Absolute Return) ^ (365/ number of years)) – 1

3. Compound Annual Growth Rate

Compound Annual Growth Rate, abbreviated as CAGR, is the rate of return by which the investment should grow from the initial investment value to its maturity value.

CAGR is computable using the following formula:

Compound Annual Growth Rate = ((Final Value/ Initial Value) ^ (1/ number of years)) – 1

Let us understand this with the help of an example.

Mr Ram invested ₹10,000 in a mutual fund scheme, and the final value is ₹14,000 over 2 years.

Particular	Amount
Final Value	₹14,000
Initial Value	₹10,000
Number of years	2
CAGR	18.32%

4. Trailing Returns

Trailing returns are the type of mutual fund returns that show the performance of a mutual fund over a specific period.

Individuals can calculate trailing returns using this formula:

Trailing Returns = (Current Net Asset Value / Net Asset Value at the beginning of the trailing period) ^ (1/ Trailing Period) – 1

Understanding these return types is key to making smarter investment decisions. If you're planning to invest in SIPs, then try our SIP return calculator to estimate how your monthly contributions could grow over time instantly.

Benefits of Each Type of Return in Mutual Funds

The table below shows the key benefits of different mutual fund returns in India.

Type of Mutual Fund Returns	Benefits
Absolute Returns	Diversification of relative return funds portfolio. Lower risks because of the diversified structure. Generates positive returns. Adjustable with the movements of the equity market. Independent of market indexes or benchmarks.
Annualised Returns	Gives a preview of the performance of an investment. Due to compounding, it provides a clearer idea about the worth of investment.
Compound Annual Growth Rate	Compares a variety of investments over a similar investment perspective. Remains unchanged with the percentage changes in the investment horizon. Fixes the limitations of arithmetic average returns.
Trailing Returns	Provides a clearer picture of the mutual fund scheme's performance than absolute returns. Historical data is taken into consideration for a block period.

An investor needs to know his/her investment objective and individual goal before investing money in any mutual fund. Knowledge about the expected returns helps investors get an idea about the scheme's performance over certain time periods.

Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.

We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.

Explore the Article Related to Mutual Fund Returns

Absolute Return vs CAGR

Absolute Return vs Annualised Return

XIRR vs IRR

XIRR vs CAGR

Trailing Returns vs Rolling returns