Mutual funds generate varying kinds of returns for investors. There are several kinds of returns that you should make a note of. These include the following:
- Absolute Returns- These returns are also known as Point to Point returns and they clearly indicate decrease/increase in investments by way of percentage. The time taken for the change has not been accounted for as of yet. The absolute returns system of working out returns is used for mutual funds that have durations lower than a year. If the period exceeds a year, then investors should calculate the annualized returns in this case.
- Annualized Returns- Annualized Returns indicate the amount of growth in the value of investments on the annual basis. For example, suppose someone invested Rs. 1 lakh in the mutual fund scheme and in 3 years, the investment increases to Rs. 1.4 lakh. The absolute return will stand at 40% in this case although annualized return will be 11.9% owing to the effects of compounding. You can use the mutual fund returns calculator for this purpose.
- Total Returns- This is the actual return that you are garnering from your investment. It covers dividends along with capital gains. For example, suppose you deployed Rs. 1 lakh in the mutual fund scheme at a NAV standing at Rs. 20. This means that you received 5,000 units in total. Post one year, the NAV increased to Rs. 22 and the value of the units increased to Rs. 1.1 lakh. In this case, the capital gain is Rs. 10,000 and now if the scheme gives dividends paid of Rs. 10,000. Hence, the total return will be the sum of these two figures, i.e. Rs. 20,000.
- Trailing Return- It represents the annualized return over a specific trailing period. For example, if the mutual fund NAV is Rs. 100 and it was Rs. 60 three years earlier, the formula is- (Current NAV/NAV at beginning of trailing period) ^(1/Trailing Period)-1. The three year trailing return will thus stand at 18.6%. The 5-year trailing return will be 14.9% if the NAV was Rs. 50 around 5 years earlier.
- Point to Point Return- It is an annualized return seen between two time-frames. You need the start date and closing date for a mutual fund plan.
- Rolling Return- This indicates annualized returns over a particular duration. Rolling return periods may be weekly, daily or monthly and will be applicable till the last day of the tenure as compared to the benchmark of the plan, i.e. CNX-Midcap, Nifty, BSE-200, CNX-500 and BSE-500.
CAGR – Compound Annual Growth Rate
CAGR (Compound Annual Growth Rate) is used for the calculation of mutual fund returns which have a holding period surpassing one year. This will lower short-term investment fluctuations and the overall volatility of NAV (Net Asset Value) of these funds. CAGR is worked out through the formula which is CAGR = (Current Net Asset Value/Beginning Net Asset Value) ^ (1/Number of Years)-1. These are the types of average returns that may be expected from mutual fund plans. You should be clear about the type of return that you are looking to compute in this regard.
April 2021 witnessed the Nifty closing at about -0.41% lower although there was comparatively higher volatility in turn. The VIX stayed elevated over 23 levels while the Nifty had a tough time in outstripping the 15,000 mark. The Nifty returns of -0.41% can mislead people since only pharma and metal stocks offered robust returns in comparison. All other sectors remained under severe pressure in April, 2021 while this had a broader effect on mutual fund NAVs (net asset values) as well. Mid-caps have outstripped large caps considerably while in the debt space, yields from bonds stayed above the 6% threshold although the repeated assurances given by the RBI and Fed led to 10-year bonds coming down slightly to 6.03% from 6.22% earlier.
Large cap equity funds have offered average returns for this period standing at 37-47% for a 1 year return while 3 year returns have touched 11-15% on average. Equity multi-cap funds have given approximate returns of 51-102% on average (1 year) while 3-year returns have touched 7-22% approximately as per market figures. Equity mid cap funds have generated returns of 52-74% (1 year) along with returns of 11-16% (3 years). ELSS funds have given 1 year returns of 60-112% along with 3-year returns of 11-22% on average. Balanced Funds have churned out returns of 37-84% and 11-19% for 1 and 3 year tenures respectively.
Credit Risk funds have offered 9-12% (1 year) and 7-8.6% (3 year) returns as per studies while Liquid funds offer 1 year returns hovering between 3-5% (1 year) along with 5-6% returns (3 year). These are approximate figures noted by several sites and platforms as of the end of April, 2021. However, it will give you an average idea of mutual fund performance and returns.