Mutual Fund Returns: Types, Calculation, and How to Evaluate Them

Mutual fund returns show how much your investment has gained or lost over a period. Mutual funds do not offer a fixed return rate. Your return depends on the fund's investments, market conditions, investment period and other factors.

Before evaluating mutual fund returns, remember these points:

• A Rs. 10,000 investment that grows to Rs. 11,200 gives an illustrative return of 12%.
• Returns can be measured over 1 year, 3 years, 5 years or other periods.
• Absolute return shows the total gain or loss, while annualised return and CAGR help compare growth over time.
• Past performance does not guarantee future returns.
• You should consider risk, investment objective, benchmark, consistency and expenses when evaluating returns.
• The Bajaj Broking website offers access to 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic and NFO categories.
• The minimum SIP amount is Rs. 100 per month.

Mutual fund returns can be positive or negative. Compare performance with the right benchmark and consider your investment horizon and risk tolerance before making an investment decision.

Mutual fund returns show how much the value of your investment has increased or decreased over a period. The change is linked to the performance of the securities held by the mutual fund scheme.

For example, suppose you invest Rs. 10,000 in a mutual fund. After one year, the investment value becomes Rs. 11,200. Your gain is Rs. 1,200. The return is 12%.

Mutual funds do not offer a fixed return. The value of your investment can rise or fall based on market movements and the securities held by the scheme.

There is no single average return that applies to all mutual funds. Different schemes invest in different securities and categories, so their returns can vary.

For example, a small-cap funds scheme and a debt-oriented scheme can have different return patterns because they invest in different types of securities.

When comparing returns, consider the scheme category, investment period, risk level, benchmark and investment objective. A single return figure does not provide enough information to judge a mutual fund.

The source page provides category-level three-year return figures. 

The following figures are retained from the source:

These figures show that returns can differ across categories. They should not be treated as guaranteed future returns.

Different return measures answer different questions. Understanding each measure can help you compare investments over the right period.

Absolute returns

Absolute return shows the percentage change in the value of an investment between two points in time. It is useful when you want to see the total gain or loss over a period.

For example, if you invest Rs. 10,000 and the value becomes Rs. 11,500, the gain is Rs. 1,500. The absolute return is 15%.

You can learn more about absolute return to understand how this measure works.

Annualised returns

Annualised return shows the average yearly rate of return over a period longer than one year. It helps you compare investments held for different periods on a yearly basis.

Annualisation does not mean that the investment actually earned the same return every year. It is a way of expressing the overall growth as a yearly rate.

Total returns

Total returns consider the overall change in the investment value over the selected period. Depending on the type of investment and the return measure used, distributions or income may also form part of the total return.

When comparing mutual fund returns, check what the reported return figure includes.

Point-to-point returns

Point-to-point return measures the change in investment value between two specific dates.

For example, you can compare the value of a mutual fund on 1 January with its value on 31 December. The result shows the change between those two points.

This measure depends on the dates selected. Different start and end dates can produce different return figures.

Trailing returns

Trailing return measures a fund's performance over a fixed period ending on a selected date. Examples include one-year, three-year and five-year periods.

Trailing returns can help you understand how a fund performed up to a particular date. However, the result can change as the end date moves.

You can also read about the difference between trailing and rolling returns in mutual funds.

Rolling returns

Rolling returns calculate returns over multiple overlapping periods within a larger time range. This gives you more return observations instead of relying on one start and end date.

For example, a three-year rolling return can be calculated using many different three-year periods within a longer historical period.

This can help you study the consistency of returns across different market periods.

Compound Annual Growth Rate (CAGR)

Compound Annual Growth Rate, or CAGR, shows the annualised growth rate of an investment over a period, assuming the investment grew at a compounded rate.

CAGR is useful when comparing investments held for more than one year. It does not show the actual return earned in each individual year.

You can read more about Compound Annual Growth Rate.

The method used to calculate returns depends on the type of investment and the return measure you want to use.

For a simple investment made once, you can first find the difference between the current value and the original investment. You can then express the gain or loss as a percentage of the original investment.

For example:

• Original investment = Rs. 10,000
• Current value = Rs. 11,200
• Gain = Rs. 1,200
• Return = 12%

For investments made through multiple instalments, such as an SIP, the timing of each investment matters. Measures such as XIRR can be used to account for different investment dates.

A mutual fund calculator can help you estimate or understand investment outcomes using the information you enter. The exact result depends on the inputs used.

You can follow these steps:

1. Open the mutual fund calculator.
2. Select the relevant investment method, such as an SIP or lumpsum.
3. Enter the investment amount and investment period.
4. Enter the expected return rate where the calculator asks for an estimate.
5. Review the calculated investment value and estimated returns.

The Bajaj Broking website also provides access to mutual fund investment tools that can help you review your investment information.

A return figure should not be viewed on its own. You need to consider the risk taken to generate the return and whether the fund follows its stated objective.

The following factors can help you evaluate a mutual fund's return:

• Risk-adjusted returns: Compare the return with the level of risk involved.
• Consistency: Look at performance across different periods instead of relying on one period.
• Fund objective: Check whether the scheme's investment approach matches your purpose.
• Benchmark: Compare the fund's performance with its relevant benchmark.
• Investment period: Use a return measure that matches the period you are analysing.
• Past performance: Past returns can provide historical information but do not guarantee future performance.

You can also read about picking a mutual fund before comparing schemes.

Several factors can affect the returns earned by a mutual fund. The effect can vary across schemes because each scheme can have a different portfolio and investment objective.

These factors include:

• The securities held by the scheme
• Changes in the market
• Changes in the economy
• Changes in a sector or industry
• The fund manager's investment decisions
• The size and cash flows of the fund
• The total expense ratio
• The scheme's investment strategy

A fund manager makes investment decisions according to the scheme's stated objective. These decisions can affect the portfolio and, in turn, its performance.

The TER is another factor to consider because fund expenses can affect the amount of return available to investors.

Mutual fund investments are subject to market-related risks. The value of the investment can increase or decrease depending on the securities held by the scheme and market conditions.

Common risks include:

• Market risk: Changes in market prices can affect the value of securities held by the scheme.
• Credit risk: A security issuer may fail to meet its payment obligations.
• Management risk: Investment decisions may affect scheme performance.
• Liquidity risk: Some securities may be difficult to buy or sell at the expected price.

The level and type of risk can differ across mutual fund categories. You should check the scheme information and its SEBI Riskometer before investing.

The SEBI Riskometer uses the following categories: Low, Low to Moderate, Moderate, Moderately High, High and Very High.

Mutual fund returns may be subject to tax depending on factors such as the type of mutual fund, the nature of the gain and the applicable tax rules.

Tax rules can change. The applicable tax treatment should therefore be checked using the current rules before making an investment decision.

Do not assume that mutual fund returns are tax-free simply because the investment is held for a particular period. The tax treatment depends on the applicable rules and the investment.

Understanding returns is only one part of evaluating a mutual fund. You should also consider the scheme's objective, risk level, investment period, benchmark and expenses.

The following points can help you review a scheme:

• Match the investment period with your financial goal.
• Check the scheme's investment objective.
• Review the relevant benchmark.
• Consider the risk level shown by the SEBI Riskometer.
• Check the expense ratio of the mutual fund.
• Compare returns over suitable periods.
• Do not select a scheme only because it recorded a high past return.

• Understand that market-linked returns can be negative.

  
  

The different mutual funds available in the market can have different objectives, risks and return patterns.

Mutual fund returns show how the value of an investment changes over time. Different return measures, such as absolute returns, annualised returns, trailing returns, rolling returns and CAGR, help you study performance from different angles.

You should consider returns along with risk, investment period, benchmark, expenses and the scheme's objective. Past performance does not guarantee future returns.

The Bajaj Broking website provides access to 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS/tax-saver, thematic and NFO categories. The platform supports SIP and lumpsum investments for most schemes. The minimum SIP amount is Rs. 100 per month.

KYC is mandatory before investing as a SEBI regulatory requirement. The Bajaj Broking website also provides tools such as Dashboard, Portfolio, Orders and MF Profile to help you track your investments.

Mutual funds offer a compelling way to participate in the stock market and potentially grow your wealth over time. By understanding the various types of mutual funds, their risk-return profiles, and how to invest through an SIP (Systematic Investment Plan), you can harness the power of these investment vehicles to achieve your financial goals. Remember, thorough research, discipline, and a long-term perspective are key to success in mutual fund investing. Consider consulting a financial advisor for personalised guidance tailored to your specific needs and risk tolerance. With careful planning and the right investment strategy, mutual funds can be a valuable tool on your path to financial security.