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How to Track & Evaluate Mutual Fund Performance
In summary
Portfolio return is the total gain or loss on all your investments over a set period, stated as a percentage of the money invested. It counts price changes plus income such as dividends and interest.
- The formula is Σ (weight × return) across every asset you hold.
- A portfolio with 66.67% in shares returning 40% and 33.33% in a debt fund returning 8% returns 29.33%.
- When you add or withdraw money during the period, the extended internal rate of return (XIRR) gives the accurate figure.
The compound annual growth rate (CAGR) converts a multi-year return into a yearly rate.
Compare your return with a benchmark that matches your asset mix, over the same period. A return is useful only next to the risk you took to earn it.
Last reviewed: September 2026
What is portfolio return?
Portfolio return is the total gain or loss on every investment you hold, over one period, as a percentage of the money invested. It combines the return of each asset according to its weight, which is the share of your money in that asset.
A portfolio can hold shares, bonds, mutual funds, gold and other asset classes. Your asset allocation is the split of your money across these classes, such as 60% equity and 40% debt. The asset with the largest weight moves the total the most, so two portfolios with the same assets can earn different returns.
Portfolio return has two parts. Capital gain or loss is the change in the market value of each holding. Income is the dividends and interest the holdings pay during the period.
How do you calculate portfolio return?
You calculate portfolio return by multiplying each asset's weight by its return and adding the results. The method you use depends on what you know and whether you added or withdrew money.
| Method | Use it when | Formula |
|---|---|---|
| Weighted return | You know each asset's return | Σ (weight × return) |
| Value-based return | You know the start value, end value and income | (End value − Start value + Income) ÷ Start value × 100 |
| XIRR | You added or withdrew money during the period | The yearly rate at which the present value of all your cash flows adds up to zero |
Example: Ananya is a software engineer who takes home Rs. 1,40,000 a month. She is saving for a home down payment in 8 years. On 1 April 2025, she holds Rs. 2,00,000 in shares and Rs. 1,00,000 in a debt fund, a total of Rs. 3,00,000.
By 31 March 2026, her shares are worth Rs. 2,70,000 and have paid Rs. 10,000 in dividends. Her debt fund is worth Rs. 1,08,000. She made no deposits or withdrawals during the year.
| Asset | Start value (Rs.) | End value plus income (Rs.) | Return | Weight | Weighted return |
|---|---|---|---|---|---|
| Shares | 2,00,000 | 2,80,000 | 40% | 66.67% | 26.67% |
| Debt fund | 1,00,000 | 1,08,000 | 8% | 33.33% | 2.67% |
| Total | 3,00,000 | 3,88,000 | — | 100% | 29.33% |
The value-based method gives the same answer: (Rs. 3,88,000 − Rs. 3,00,000) ÷ Rs. 3,00,000 × 100 = 29.33%. These figures are before taxes and costs, and they are an illustration, not a forecast.
How do you calculate portfolio return with deposits or withdrawals?
When you add or withdraw money during the period, use XIRR, because the simple methods treat every rupee as if you invested it for the full period. XIRR weights each rupee by the number of days it stayed invested.
Suppose Ananya invests Rs. 1,00,000 on 1 April 2025 and adds Rs. 50,000 on 1 October 2025. On 31 March 2026, the holding is worth Rs. 1,65,000.
- The simple return is (Rs. 1,65,000 − Rs. 1,50,000) ÷ Rs. 1,50,000 × 100 = 10.00%.
The XIRR is 12.12% a year, because Rs. 50,000 of the money stayed invested for only 6 months, not 12.
You can calculate XIRR in a spreadsheet with the XIRR function, entering each deposit as a negative amount and the final value as a positive amount. A time-weighted return removes the effect of your deposits altogether and measures only how the investments performed. Mutual fund returns based on net asset value (NAV) work this way, so use time-weighted return to judge a fund manager and XIRR to judge your own result.
How do you annualise a multi-year portfolio return?
To convert a multi-year portfolio return into a yearly rate, use CAGR. It shows the rate at which your money grew each year on average.
CAGR = (End value ÷ Start value)^(1 ÷ Number of years) − 1
If Rs. 3,00,000 grows to Rs. 4,00,000 in 3 years, the total return is 33.33%. The CAGR is (4,00,000 ÷ 3,00,000)^(1 ÷ 3) − 1 = 10.06% a year. Use CAGR to compare returns over periods of different lengths, and use XIRR instead if you added money during those years.
Why does portfolio return matter?
Portfolio return matters because it tells you whether your investments, taken together, are on track for your goal. It shows the result of your asset allocation, not of one holding.
You use it for three decisions. First, you check progress: Ananya needs a set amount in 8 years, so she compares her return with the rate her plan assumes. Second, you compare with a benchmark to see whether your choices added value. Third, you spot drift in your asset allocation that calls for rebalancing.
A return means little without the risk behind it. Two portfolios that each return 12% can differ in risk: one can swing 25% in a bad year while the other swings 5%. Read about the risk-return trade-off and your own risk tolerance before you judge a result.
What are the 5 factors that affect portfolio return?
Five factors decide your portfolio return: asset allocation, market conditions, risk, diversification and costs. The table shows how each one works.
| Factor | How it affects your return |
|---|---|
| Asset allocation | Sets how much each asset's return counts toward the total |
| Market conditions | Interest rates, inflation and economic growth move the prices of shares and bonds |
| Risk | Assets with wider price swings produce both larger gains and larger losses |
| Diversification | Holding assets that do not move together reduces the damage from one bad holding, but does not remove market risk |
| Costs | Expense ratios, brokerage and taxes reduce the return you keep |
To see how these factors combine across your holdings, read about portfolio risk. Review all five once a year, when you calculate your return.
How do you compare your portfolio return with a benchmark?
Compare your portfolio return with a benchmark that holds the same asset mix, over the same dates. A benchmark is a market index that represents a type of investment, such as an index of large listed companies or an index of government bonds.
F
or Ananya's 66.67% shares and 33.33% debt split, the fair benchmark is a blend: 66.67% of an equity index return plus 33.33% of a bond index return. Use the Total Return Index (TRI) version of each index, which adds dividends or interest to price changes. The Securities and Exchange Board of India (SEBI) has required mutual fund schemes to benchmark against TRI since February 2018, under its circular of January 2018.
If your return beats the blended benchmark, your choice of holdings added value over that period. If it trails, check whether costs or one holding explain the gap before you change anything.
How can portfolio return help you rebalance?
Portfolio return helps you rebalance by showing when one asset has grown enough to push your allocation away from your plan. Rebalancing means moving money between assets to restore your target split.
Suppose you start with Rs. 10,00,000 split 60% equity and 40% debt. In a year, equity rises 50% to Rs. 9,00,000 and debt rises 5% to Rs. 4,20,000. Your portfolio is now Rs. 13,20,000, and equity makes up 68.18% of it.
To restore 60% equity, you move Rs. 1,08,000 from equity to debt, leaving Rs. 7,92,000 in equity. Before you switch, check the exit load and the tax on the units you sell, because both reduce what you move.
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Frequently Asked Questions
Return and profit
Judging your result
Is portfolio return the same as profit?
No. Portfolio return is a percentage, while profit is the rupee amount you gain. A 10% return on Rs. 1,00,000 is a profit of Rs. 10,000 before costs and taxes. You need both figures. The percentage lets you compare portfolios of different sizes, and the rupee amount shows whether you are on track for a fixed-cost goal, such as a down payment.
Can your portfolio return be negative?
Yes. Your return is negative when losses on your holdings exceed the gains and income over the period. A portfolio with 60% in equity can lose value in a year when share prices fall, even if the debt part gains. Measure over a period that matches your goal, because a negative return in one year does not decide the result over 8 years.
Should you include taxes and costs in your return?
Yes, if you want the return you actually keep. The formulas on this page give a pre-tax, pre-cost return, which suits comparison with a benchmark. For your own planning, subtract expense ratios, brokerage and the tax you will pay on gains. Keep both figures, and compare like with like: pre-cost with a benchmark, and post-tax with your goal.
What is a reasonable portfolio return?
A reasonable return is the return of a benchmark with the same asset mix as yours, over the same period. A fixed target, such as 12% a year, ignores what markets delivered. If your blended benchmark returned 9% and you earned 8.5%, the gap is 0.5 percentage points. Check your costs first, because expense ratios alone can create a gap of that size.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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