Absolute Return
The total percentage change in an investment's value, without annualising.
Absolute return is only comparable across investments held for identical periods. For anything longer than a year, convert to CAGR or XIRR before comparing.
Why Absolute Return matters when comparing products
Understanding absolute return is crucial when evaluating financial products in India because it shows the overall gain or loss over the investment period. However, for fair comparison between products, particularly those with differing durations, absolute return alone can be misleading. It does not account for the time value of money, making it less suitable for directly comparing investments held for different lengths of time. This is particularly relevant given the diverse range of investment tenures available in the Indian market.
Illustrative example
Suppose an investor put ₹10,000 into a mutual fund. After 15 months, the investment grew to ₹11,500. The absolute return would be calculated as ((11,500 - 10,000) / 10,000) * 100 = 15%. This 15% represents the total percentage increase over the entire 15-month period, without considering an annualised rate.