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# What is the best way to calculate returns on mutual fund investments?

Let’s say that you have fixed a financial goal. Now you have decided to invest in a mutual fund through SIP. You may obviously want to know how your portfolio shapes up. Below are a few formulas that will help you calculate the probable returns. Here is a guide to the different ways in which you can calculate your returns on mutual fund investments

1. Point-to-point or Absolute Returns:

This formula helps you to calculate the simple returns on your initial investment. In order to do so, you simply need to know the starting and the latest net asset value (NAV). This formula can be used to calculate returns when the holding period is less than 12 months.
You can use the following formula:
Absolute return = {(Current NAV – Initial NAV)/ Initial NAV} x 100

1. Simple Annualized Return:

At times when the holding period is less than a year, people may wish to see what their return might be at the end of the year; this is called annualizing. You may use the following formula in excel sheet to calculate your estimated returns. For calculating a simple annualized return, you can use the following formula:
Annualized Return = (1+ Rate of Absolute Return) (365/no. of holding days) – 1

1. Compounded Annual Growth Rate (CAGR):

CAGR is a more effective way to calculate your returns if the duration of your SIP investment is more than a year. This method shows you the growth of your investment had it generated a constant return. Realistically though, returns may or may not be the same every year. Therefore, CAGR shows a mean annual growth rate that smoothens out the volatility in returns over duration of time.
Formula: CAGR = (Ending Value/Starting Value) (1/ No. of year) – 1

1. Total Returns:

The Point-to-Point method can be limited at times. In order to bypass those limitations, you can use the Total Returns method. This concept adds the dividends that are distributed during the holding period, to the absolute change in the NAV, and dividing it by the NAV on the starting date.
Formula: Total Return = [{Dt + (Current NAV – Initial NAV)}/ Initial NAV] x 100; where Dt is dividend received per unit.

Now that you have the formulas, you may decide where to invest your funds basis the returns that you want. If you have made up your mind, you may choose HDFC securities to start with your investment. As an experienced investor I can assure you that they are the best in the business.

https://www.hdfcsec.com/mutual-fund-investment-online