Absolute return, CAGR and rolling returns: how to read a fund's returns

Absolute return is the total change in your money, with no clock attached. CAGR spreads that same change evenly over the years, as a yearly average. Trailing returns are CAGRs (or, under a year, plain changes) that end today. Rolling returns repeat the sum from many start dates to show how steady a fund has been.

The distinction matters because the same 30% can be a quick result or a slow one. A fund page or a friend's screenshot may not say which.

What is absolute return, and how do you work it out?

Absolute return is the total gain or loss on an amount, shown as a percentage of what you put in. It ignores how long that took. In words: value now, minus the amount invested, divided by the amount invested, times 100.

Say ₹2,00,000 grows to ₹2,60,000. The gain is ₹60,000, and ₹60,000 divided by ₹2,00,000 is 0.30, so the absolute return is 30%. Every example in this article is made up to show the arithmetic. None is a real fund.

The number has one weakness. It says nothing about time. A 30% gain in two years and a 30% gain in twenty years look identical.

Absolute return is the figure SEBI's scheme document format asks for when a fund is less than one year old. On a Koshex fund page, 1-month, 3-month and 6-month figures are simple percentage changes.

What is CAGR in a mutual fund?

CAGR (compound annual growth rate) is the average yearly growth rate over a period. It is worked out as if the fund had grown at the same pace every year. In words: value now divided by the amount invested, raised to the power of one divided by the number of years, minus 1.

Take the same ₹2,00,000 that became ₹2,60,000. Over 2 years that is 14.02% a year. Over 4 years it is 6.78% a year. The gain is the same 30%, but the yearly pace is very different.

SEBI's own worked example in its rules uses exactly this method, counting a year as 365 days. The rules also tie fund houses to it. On AMFI's website, a fund house must show a fund's CAGR for 1, 3, 5 and 10 years and since launch. The benchmark's CAGR for the same periods sits beside it.

A benchmark is the index a fund is compared with. An index is a list of companies picked by fixed rules, such as the 50 in the NIFTY 50. Its combined value is tracked every day. SEBI requires the comparison against the total return version of the index, which counts dividends as well as price changes.

CAGR is an average, so it hides the path. A fund that rose steadily and one that swung wildly can show the same CAGR.

Absolute return or CAGR: which should you look at?

Look at CAGR whenever the periods differ. Use absolute return only for a total over a period you already know.

The table below puts one gain through three clocks. A made-up ₹1,00,000 doubles to ₹2,00,000, so the absolute return is 100% every time.

Doubling in 2 years and doubling in 10 are very different paces. Only the CAGR column tells them apart.

A simple average of yearly returns has a trap that CAGR avoids. A higher average yearly return can still end lower in rupees, which the fund risk article shows with two made-up funds.

CAGR works when a fund falls, too. Suppose ₹1,00,000 becomes ₹80,000 over 3 years. That is a CAGR of −7.17% a year.

What are trailing returns, and why do the dates matter?

A trailing return, also called a point-to-point return, is the return from a start date to the latest NAV. NAV is the price of one unit of a fund. A "3-year return" on a fund page is a trailing return: today's NAV against the NAV three years ago.

Each figure depends on both dates. Here is a made-up fund whose NAV at the end of each year was ₹10, ₹12, ₹11, ₹14, ₹13, ₹16 and ₹18. Its latest 1-year return is 12.50%, from ₹16 to ₹18. Its 6-year CAGR is 10.29%, from ₹10 to ₹18. Same fund, same day, two different numbers, because the start dates differ. Move the end date a few months and the figures change.

SEBI's advertising rules fix the dates for adverts. A fund's performance in an advert must run to the last day of the month before the advert. It must be given as CAGR for at least 1, 3 and 5 years and since launch. A point-to-point figure on a standard ₹10,000 investment must be shown too.

Adverts for young funds follow a separate rule. An advert for a fund under six months old cannot show its past performance. One between six months and one year old shows a simple annualised growth rate for six months and since launch. A simple annualised rate is a short-period change scaled up to a year without compounding.

Liquid, overnight, ultra short duration, low duration and money market funds also show 7-day, 15-day, 1-month, 3-month and 6-month returns on AMFI's website. Check the fund house's note on whether a short-period figure is annualised before comparing it with a yearly return.

Returns worked out from NAVs are already after the fund's running costs, including the expense ratio. Like-for-like tables use the growth option, which pays nothing out and keeps the money invested. IDCW, the payout option, reduces its NAV by the amount paid (see growth vs IDCW).

On a Koshex fund page, returns for one year and longer are yearly averages (CAGR); 1-month, 3-month and 6-month figures are simple percentage changes.

What are rolling returns, and how do you read them?

Rolling returns are the same-length return measured from many start dates, so you see a range rather than one window. A trailing return is one photograph. Rolling returns are the whole album.

Using the made-up fund above, take every three-year window the yearly NAVs allow:

A single trailing figure could have shown any one of these four. The set tells you more. The highest was 13.30%, the lowest 2.70%, and the latest 8.74%.

Read the spread, not an average. Look at the highest and the lowest, and at how often the figure fell below a level that matters to you. Then set the fund's rolling returns beside its benchmark's over the same windows.

A real rolling series uses daily or monthly start dates, not yearly ones. This table uses yearly points only so you can check the sums by hand.

Neither SEBI nor AMFI publishes rolling returns for funds. They come from research sites and apps. They also describe the past only. As AMFI puts it, past performance may or may not be sustained in future.

Trailing and rolling returns answer different questions, so neither is better in every case. Trailing says how a fund did up to today. Rolling says how steady it has been.

Which return number answers which question?

Each of these numbers answers a different question, and the table below pairs them.

The last row is about your return, not the fund's. It is a yearly rate that allows for payments made on different dates. The article on your own return explains how it works and why your figure can differ from the fund's.

A category is SEBI's label for what a fund may hold. Our category pages rank funds by their three-year return and show the category's average 1-, 3- and 5-year returns, counting only funds with at least three years of history. Those are past numbers, not a forecast.

To try your own numbers, the lumpsum calculator gives an illustration, not a forecast.

Koshex, as a distributor, helps you choose a fund that suits your goal and timeline. The guide to choosing a fund lists the other checks, and you can browse funds on the mutual funds page.