Savings form an important part of everyone’s life and you may not be an exception to this belief. There are several saving schemes in the market, which allow you to invest and multiply your savings. But, in the end, only the ones linked with equity markets offer substantial returns.
Direct investment in equities can be risky, so you can prefer buying the mutual funds. These funds are linked with capital market instruments, and the funds gathered through them are managed by experts, who have in-depth knowledge of stock market movements. Still, you will always have a doubt whether your investments are growing or not.
To solve all your doubts to assess mutual fund performance, take a look at these 3 in-depth, number crunching methods that help in assessing the growth in a better way.
1. Absolute Returns
This method is also called as point-to-point method of evaluating the growth of mutual funds. It is commonly used to calculate returns and is one of the easiest methods of all. According to mutual fund definition, NAV is the net asset value of the scheme for a particular day. In this method, NAVs on two dates are used to assess returns.
The formula is: Absolute Returns = (NAVend – NAVstart / NAVstart) x 100
2. Total Return
This method includes the dividends received over underlying stocks for a particular MF scheme. It is better than the Absolute Return method, and is calculated by summing up dividends for a particular period to the absolute change in NAV.
The Formula is: Total Return = (Dt / NAVstart) x 100 + Absolute Return
3. CAGR (Compound Annual Growth Rate)
This method is very intensive and is applicable for holding periods of more than one year. It eradicates the fluctuations and inconsistencies experienced during short term holding periods and offer a solid picture to the investors.
These are the three number intensive techniques, which help in assessing mutual fund performance in a better way.