Understanding Absolute Return in Mutual Funds: A Simple Guide

You invested Rs. 75,000 in a mutual fund, and now your statement says it’s worth Rs. 95,000. Clearly, your money has grown, but by how much? As you try to calculate it, you come across terms like CAGR or relative return, all of which sound a bit technical. All you want is a simple way to know how much your money has grown. That’s what absolute return shows.

But what is absolute return in a mutual fund? Let’s break it down.

Understanding absolute returns

Absolute return is the simplest way of checking how much your investment has grown or declined over a given period. It doesn’t consider the performance of the stock market or other funds. It just tells you the percentage gain or loss on your money.

For example, if your mutual funds of Rs. 75,000 have grown into Rs. 95,000, you have made Rs. 20,000 profits, or 27%. But how did we arrive at this 27%? Read on to the following sections to know more.

How to calculate absolute return?

The math behind absolute return is simple. Here’s the formula:

Absolute return = (Final value – Initial value) ÷ Initial value × 100

Let’s put this into an example:

• You invested Rs. 75,000 in a mutual fund.
• After one year, its value grew to Rs. 95,000.

Now, applying the formula (you can even use your phone calculator!), we get:

(Rs. 95,000 – Rs. 75,000) ÷ 75,000 × 100 = 27%

That means your investment has earned a 27% absolute return.

Why does absolute return matter?

Now that you understand what absolute return is and how to calculate it, you should also know why it matters. This percentage:

• Shows exactly how much your investment has grown or fallen
• Is easy to understand and doesn’t require any financial expertise
• Helps you make informed decisions on whether to stay invested, invest more, or adjust your strategy

When should you use absolute return?

Understanding why absolute return matters is only the first step. Knowing when to use it helps you make the most of your investments.

Absolute return works best when:

• Checking short-term investments (weeks, months, or up to a year)
• Looking for results without any comparisons to the market or other investment options
• Starting your investment journey and needing simple numbers

Note: For long-term investments, like saving for retirement, absolute return alone may not give the full picture. In such cases, metrics like annualized return or Compounded Annual Growth Rate (CAGR) are better suited, since they spread your growth over the years.

Track your mutual fund returns easily

Absolute return calculates, in simple numbers, how much your investment has grown. So, the next time you look at your mutual fund statement, you will know how to calculate your gains and take smarter steps on your financial journey.

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