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Mutual Fund Returns
There are ways to compute our returns from Mutual Fund Investment.
One can’t assess true returns just by comparing present NAV with one’s investment at the beginning.There are various factors which are to be taken into consideration.
1) Absolute Returns : In this method, one ignore the time period of investment and simply takes the difference between market value and cost as a percentage of cost.
Like today’s NAV is Rs 20 and one has taken it during NFO at Rs 10.This is a 100% profit. But this is actually wrong.
2) Annualized Returns: In this method, one considers the time period of investment.Here one considers the difference between market value and cost,divides the difference by cost ,multiples by 365 days one has stayed invested.For the above
Example, it is 10/20*1 year, gives you 25% returns.
3) Assessing Performance: Absolute Returns or Annualized Returns one should not judge on a standalone basis.One must also compare the fund’s competitors and
benchmark index of the fund. If we consider for the above scheme benchmark index is BSE Sensex, which has given a absolute
Return of 60% and annulized return of 30% , then the above equity diversified scheme has under-performed.Other benchmark during that period has given a return of 45% ,22.5% respectively.So, here this scheme has done better in this benchmark index.
Information about returns of mutual fund schemes and comparison between their benchmark indices and averages of these categories they fall under are available on internet .
So, don’t be simplistic while assessing the performance of mutual fund returns .Use computation strategies to judge the performance of your investments vis-à-vis benchmarks and competitors.
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