Mutual Fund Returns - What Are Types and Return Rate

Understanding returns from Mutual Funds

The return from mutual funds is expressed as a percentage and calculated using various components like dividend, capital growth, value of underlying assets etc. An online Mutual Fund return calculator makes it very easy to calculate Mutual Fund returns. (Note: Returns for 1 year and below are absolute returns, returns above 1 year are CAGR – Compounded Annualized Growth Returns)

What is the average return of Mutual Funds?

The average returns of the fund may be measured over various time periods like daily, monthly or annual returns. The average returns differ between different categories of mutual funds. This is because each category of funds has different types of underlying securities which perform differently in the market due to their inherent nature.

In the next section we will look at the different types of mutual fund returns.

Types of mutual fund returns

The various types of mutual fund returns are:

1. Total Returns: This includes income generated through dividends and interest as well as capital gains.
2. Absolute Returns: This refers to the percentage increase or decrease in the value of a scheme over a specific period.
3. Point to Point Returns: This type of returns is calculated in absolute terms between two dates which may be a year, 3 years or five years apart. The important thing here is the starting and end date for calculating the returns.
4. Annualized Returns: Annualized return is the annual rate at which the mutual fund investment has grown over a specified period.
5. Annual Return: This refers to the performance of the fund in one or multiple calendar years.
6. Trailing Return: This gives the average annual return between two dates. The compounding formula is used to calculate this return.
7. Compounded Annual Growth Rate: This is the rate of return that grows an investment from its beginning balance to its ending balance as on the current date.Here the profits are reinvested at the end of each period of the investment’s life span. Simply speaking, Compound Annual Growth Rate is the annual growth of your investments over a specific period of time.
8. Rolling Returns: This is calculated for a particular period like 1 year rolling, 3 year rolling etc, on a continuous basis (or fixed frequency). It is like calculating trailing returns on a daily basis.

How to calculate mutual fund returns

Mutual fund returns may be calculated using specific formulas either using a calculator or on an excel. However, the easiest way to calculate the returns is by using an online mutual fund return calculator.These calculators are freely available online and you can calculate the returns of your intended schemes by feeding in the amount you want to invest and the time period you intend to stay invested along with the mutual fund interest rate commonly known as expected returns.

Factors affecting mutual fund returns

Returns from mutual funds can be calculated using a mutual fund investment calculator and is dependent on a number of factors like the fund manager’s expertise in selecting the underlying securities or market conditions. Markets depend on factors like political unrest, or change in policy decisions etc. Sometimes, a sector might outperform others due to favorable business environments or underperform due to changes in the demand for its products in the domestic and/or international markets. Therefore, it is important to keep reviewing the returns from your investments at periodic intervals and reallocate your portfolio if need be.

Things to consider about mutual funds returns

Few things to keep in mind while calculating mutual fund returns are -

1. Comparing the mutual fund interest rate with its benchmark. Benchmark is the standard against which a fund’s performance is compared and measured.
2. Consider the risk adjusted returns of the fund. High return mutual funds may come with higher risks which may not match your risk appetite.
3. The returns from mutual funds should be considered by taking into account the expense ratio as well.
4. Consider if the fund under consideration has dividends or distributions as these influence the total returns of the fund.
5. Mutual fund returns are measured against the scheme benchmark. Benchmark is the standard against which a fund’s performance is compared and measured. A fund can be considered good performing if it is able to beat its Benchmark return over various tenures.



Contact your mutual fund distributor or financial advisor to discuss mutual fund returns of various scheme categories.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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