Module 7: Measuring Performance
Topic: Understanding Investment Performance
Post your investment, how do you now calculate the returns on your investments
CAGR → The compounded annual growth rate (CAGR) is one of the most accurate ways to calculate returns for anything that can rise or fall in value over time. The CAGR formula is useful for comparing the performance of different investments over time. You need the initial, final investment value and the time period for which you have made the investment to calculate the returns.
Absolute Return → This is probably something you are already aware of. It just measures the change from the initial value to the final value over a period of time. It can be an appreciation or depreciation of your investment calculated over a period of time. For the investment you have made, you can calculate the absolute returns. You need only the initial investment and final investment values to calculate the returns.
XIRR → Extended Internal Rate of Return. XIRR is useful for calculating returns for investments made through a systematic investment plan (SIP). It considers the timing of each transaction, including investments and redemptions you have made, to provide a more accurate measure of investment performance.
Key Takeaway:
The return calculation will be different for each investment type since the investment duration is different in each case.
Task:
On your investment app check the past returns for the scheme you have invested in. Say for example, you can check the returns for the past 1 year, 3 years or 5 years.
Previous Module
Next Module
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
An Investor education and awareness initiative by Zerodha Mutual Fund.
