What are absolute, CAGR, and XIRR returns in mutual funds?
When you invest in mutual funds through Bullsmart, you'll often come across different ways of measuring returns — Absolute, CAGR, and XIRR.
While they all tell you how your investment is growing, they are used in different situations. Let’s break them down in simple terms:
1. Absolute Returns
When is it used?When the investment period is less than one year or for a fixed duration (e.g. 6 months, 18 months).What does it mean?It shows how much your investment has grown in total, without considering the time taken.Formula:Example:If you invested ₹10,000 and it becomes ₹11,000 in 6 months,Absolute Return = ₹1,000 gain = 10%.
2. CAGR (Compound Annual Growth Rate)
When is it used?When the investment is for more than a year and there is a lump sum investment (you invested once, not in parts).What does it mean?It shows the annual growth rate of your investment as if it grew at a steady rate every year — even though actual returns may fluctuate.Formula:Example:If you invested ₹10,000 and it grows to ₹15,000 in 3 years,CAGR = 14.47% per year approximately.
3. XIRR (Extended Internal Rate of Return)
When is it used?When you invest multiple times (like through SIPs) or withdraw at different times.What does it mean?It gives the actual annual return by taking into account the exact dates and amounts of all your investments and withdrawals. It’s the most accurate way to measure real-world returns.Example:Suppose you invest ₹5,000 every month from January to December (total ₹60,000), and the value of your investment at the end of December is ₹66,500.Since each ₹5,000 was invested at different times, you can’t use CAGR or Absolute Return.Using XIRR, your effective annual return (based on actual dates and compounding) might be around 10.5%, depending on exact transaction dates.
At Bullsmart, we show you the most relevant return metric based on your investment type — so you can track your mutual fund performance accurately and confidently.
Related Articles
How do mutual funds generate returns?
How Do Mutual Funds Generate Returns? A Beginner-Friendly Guide Mutual funds are one of the most accessible and efficient ways to grow wealth in India. But how do they actually make you money? Let’s understand this step-by-step: 1. Where Does Your ...Can NRIs invest in Indian mutual funds?
Non-Resident Indians (NRIs) are eligible to invest in mutual funds in India, subject to certain rules and regulations set by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Here’s a detailed overview of how NRIs ...What are sectoral and thematic mutual funds?
Sectoral and thematic mutual funds are two types of mutual funds that focus on specific sectors or themes in the market, offering investors a targeted approach to investing. Both types have their unique advantages and risks, and understanding their ...What is the ideal investment duration for mutual funds?
To achieve substantial returns, it is recommended to stay invested for a minimum period of 3 to 5 years. However, if your investment goals are short-term, you may consider investing in liquid funds, money market funds, or ultra-short-duration mutual ...What is the risk-return tradeoff in mutual funds?
The risk-return tradeoff is a basic principle in investing — it means that to earn higher returns, you usually need to take higher risks. And if you prefer lower risk, you'll likely have to settle for lower returns. This concept is very important in ...