Understanding Investment Returns: Absolute Returns, CAGR & XIRR
When it comes to evaluating investment performance, three common metrics are often discussed: XIRR, CAGR, and Absolute Returns. Each of these measures offers a different perspective on how an investment has performed over time. ABSOLUTE RETURNS Absolute Returns measure the total return of an investment over a specific period. It is the simplest form of calculating returns and does not take into account the time factor. The formula for Absolute Returns is: Absolute Return = ((Final Value – Initial Value)/Initial Value)*100 Example_A: If you invested Rs. 1,00,000 and it grew to Rs. 1,20,000 in 3 years, the Absolute Return would be 20% as under: = ((120000 – 100000)/100000)*100 = (20000/100000)*100 = 20% CAGR (COMPOUNDED ANNUAL GROWTH RATE) CAGR is the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value ...