Absolute vs Annualized Returns

Absolute Return

Simply how much your investment grew in total:

Absolute Return = (Final Value - Initial Value) / Initial Value × 100

Example: Invested ₹1 lakh, now worth ₹1.5 lakh → Absolute return = 50%

Problem: 50% in 2 years is great. 50% in 10 years is poor. Absolute return ignores time.

Annualized Return (CAGR)

Converts any return to a per-year basis for fair comparison:

Annualized Return = [(Final / Initial) ^ (1 / years)] - 1

Same example:

50% in 2 years → ~22.5% annualized
50% in 5 years → ~8.4% annualized
50% in 10 years → ~4.1% annualized

Now you can compare them fairly against each other and against benchmarks.

Why This Matters

When someone says "this fund gave 200% returns," always ask: Over what period?

200% in 3 years = 44% annualized (exceptional)
200% in 10 years = 11.6% annualized (decent)
200% in 20 years = 5.6% annualized (below average)

Rule of Thumb

Always compare annualized returns, never absolute
For periods < 1 year, absolute return is fine
For periods ≥ 1 year, always annualize

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future returns.