How are returns calculated in Mutual Funds?

Following are the ways where returns are calculated:

Absolute Return- It's one of the easiest and commonly used methods for calculating a fund's return. It considers NAV on two dates—at the beginning and end of the holding period. The return is calculated by dividing the absolute change in NAV by the NAV on the start date. Its advantage is that it can be applied to virtually all kinds of funds.

Example: So, if you had invested on 1 January 2015 in a fund at a NAV of Rs 10 per unit and sold the units on 2 June 2017 at a NAV of Rs 18.5, the point-to-point return would be 85%.

[NAV (end)- NAV (start) / NAV (start)] X 100

Compound Annual Growth Rate (CAGR)- You may use CAGR to calculate returns for the period beyond one year for your investment in MF. The CAGR returns are annualized returns, with the compounding effect. The CAGR is calculated as follows:

{Current NAV/ Purchase NAV}^(1/no. of years) or (365/ no. of days) or (12/ no. of months) – 1