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Annualized Return Formula:
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Annualized Return is the geometric average amount of money earned by an investment each year over a given time period. It shows the compound rate of growth of your investment, smoothing out the effects of volatility.
The calculator uses the Annualized Return formula:
Where:
Explanation: This formula calculates the compound annual growth rate (CAGR) of your investment, providing a standardized way to compare investment performance across different time periods.
Details: Annualized return helps investors compare different investment options, assess fund manager performance, and make informed decisions about portfolio allocation and investment strategies.
Tips: Enter initial investment amount, final investment value, and investment period in years. All values must be positive numbers. The calculator will provide the annualized return percentage.
Q1: What's the difference between annualized return and absolute return?
A: Absolute return shows total gain/loss, while annualized return shows the average yearly return, making it better for comparing investments of different durations.
Q2: Why use annualized return instead of simple average?
A: Annualized return accounts for compounding effect, providing a more accurate picture of investment growth over time.
Q3: What is a good annualized return for mutual funds?
A: This varies by fund type and market conditions. Equity funds typically aim for 10-15%, debt funds for 6-8%, and hybrid funds fall in between.
Q4: Does this calculator account for dividends and SIP investments?
A: This calculator works for lump-sum investments. For SIP calculations, you would need a different formula that accounts for regular contributions.
Q5: How accurate is annualized return for predicting future performance?
A: Past performance doesn't guarantee future results. Annualized return is historical data and should be one of many factors in investment decisions.