1. SIP
2. Partially realized gains
Returns of fund's performance for a period of less than 1 year are Absolute Returns and that in excess of 1 year are Annualised Returns.
For Annualised returns, we use the CAGR formula i.e. Compound Annualised Growth Rate formula.
If an investment of Rs 5,000, made five years ago has grown to Rs 6,500 today, then the absolute gain would be Rs 1,500 - a 30 per cent growth on initial investment. A 30 per cent return on investment would normally qualify as good but for the fact that it was realized over five years. If you want to know how much the investment has grown on a yearly basis, you will have to take a look at the compounded Annualised growth rate (CAGR).
The CAGR tells you the return a fund turned in every year during the five-year period, provided the gains were re-invested every year. In this case, the CAGR works out to 5.38 per cent. So, in the first year the investment would have grown to Rs 5269. In the second year, it would have been Rs 5552.4 (by adding 5.38 per cent of Rs 5269) and so on. In India, mutual fund regulations require that all returns over one year should be stated in Annualised terms.
On our website, we calculate the returns for less than a year using the absolute method and those above a year as Annualised.
For calculations of SIP returns, the complex formula of XIRR is used. You can access this formula in a software like MS Excel. To calculate you should list your monthly SIPs as an outflow respective to a date and then write the final value on the respective date of calculation. The XIRR formula would give you the internal rate of return of your investment.
In the above table you see a monthly SIP of Rs.1000 which is taken as outflow every month. On December 10, 2007 the value of the investment stands at Rs. 13000. The XIRR function helps you calculate your annualised return i.e 17.7 per cent.
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