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## Returns Calculations in Mutual funds

Unlike Fixed deposits, returns calculator happens differently in mutual funds. In fixed deposits, one gets fixed interest. In mutual funds, the returns are simple as:

*price at which you sell – *price* at which you buy*

Now, this may look simple but now brings the uncertainty of the price at which you will sell.

Different categories have different types of returns and risk levels. Within a category as well, the returns vary based on the performance of each mutual funds scheme. That is the reason why you see different returns for different schemes.

**Absolute or Point-to-Point Return**

This technique helps the investors in calculating simple returns upon their initial investment. For calculating the same, the investors would need the initial as well as the ongoing or the last NAV (Net Asset Value) of the particular SIP scheme. For calculating the absolute or point-to-point return, there is no role of the holding period. Therefore, in case your starting NAV was like, 20 INR and after a period of three years, it has become 40 INR, then the absolute or point-to-point returns would round off to 100 percent.

For calculating your returns with this technique, you just need to apply the formula as:

Absolute return = (current NAV – initial NAV) / initial NAV x 100.

You can put this formula on an excel sheet and then you can start your calculations. You can use the formula for calculating the returns while the holding time tends to be less than one year.

**Simple Annualized Return**

Some people might wish to annualize their overall return that is generated while the holding period tends to be less than one year. This technique is also known as the “effective annualized yield”. This is actually referred to as the extrapolation of the returns. This does not give the original picture. In case you wish to annualize the SIP returns, then you can use the following formula:

((1 + Absolute Rate of Return) ^ (365 / number of days)) -1.

You can put this formula into the excel sheet for calculating the returns.

The absolute return has been made compulsory by the SEBI (Securities and Exchange Board of India) to be simple annualized while the period tends to be less than one year.

**CAGR (Compounded Annual Growth Rate)**

When the tenure for your SIP investment tends to be more than one year, CAGR can be an easier way of calculating the returns. This usually depicts a figure that reveals the manner in which the investment should have grown if it had been generated as the steady return. But, in reality, the expected returns might not tend to be equal every year. This is the reason CAGR is used to represent the mean annual growth rate which tends to smoothen the volatility occurring in the returns upon a certain time period.

When you are using CAGR for calculating returns of your SIP investment, then you can make use of the formula as:

((( Ending Value / Beginning Value) ^ (1 / number of years)) – 1 * 100

Make use of these simple steps for calculating the returns on your SIP investment. Thus, you can analyze the growth of your investment in a better way.