Two numbers for the same journey
A fund page can show a return in two forms, and they answer different questions.
- Absolute return is the total change: if ₹1,00,000 became ₹2,00,000, the absolute return is 100%.
- CAGR (compound annual growth rate) is the steady yearly rate that gets you there. It is what you would compare with an FD rate or another fund.
The two only look alike for a period of exactly one year. For anything longer, the absolute figure is much bigger than the yearly one.
From total to yearly
The formula is CAGR = (end value ÷ start value)^(1 ÷ years) − 1. The CAGR calculator does it for you, and these examples show the pattern.
| Total gain | Over | Equivalent yearly rate |
|---|---|---|
| 100% (doubled) | 5 years | 14.9% |
| 100% (doubled) | 10 years | 7.2% |
| 200% (tripled) | 10 years | 11.6% |
The same "100%" is a strong result in 5 years and a modest one in 10. Without the time, the headline number is almost meaningless. The rule of 72 is a quick check: at 7.2% a year, money doubles in about 10 years.
From yearly to total
Going the other way shows how large an absolute return becomes. A steady yearly rate compounds, so:
| Yearly rate | Over | Total gain |
|---|---|---|
| 20% | 5 years | 148.8% |
| 12% | 10 years | 210.6% |
| 15% | 10 years | 304.6% |
At 15% a year for ten years, the total gain is not 150% but about 305%: a ₹1 lakh investment would grow to about ₹4.05 lakh. Adding yearly rates (15 × 10 = 150) is the classic mistake.
Why short periods are shown differently
A fund that rose 8% in two months does not have a 60% yearly return. Annualising a short window multiplies luck into a number nobody can expect to repeat. That is why, on WealthTicker, returns under one year are shown as the plain change, and from one year upward as CAGR.
What CAGR hides
CAGR smooths the path. Two funds with the same 10-year CAGR can have taken very different routes, one steady and one with a deep fall in the middle. Read it next to maximum drawdown, and note that it describes a past lump sum, not what your own purchases earned.
When CAGR is the wrong tool
If you invested through a SIP, each instalment has been in the fund for a different time, so a single CAGR does not apply. Use XIRR instead, as explained in portfolio XIRR vs gain, or the XIRR calculator.
A quick checklist
- Ask "over how long?" every time you see a return.
- Convert totals to yearly rates before comparing across periods.
- Use CAGR for a lump sum, XIRR for a SIP or any series of cash flows.
This post is educational, not financial advice. The examples are arithmetic illustrations, not fund returns or forecasts.
Frequently asked questions
What is the difference between CAGR and absolute return?
Absolute return is the total percentage change over the whole period. CAGR is the steady yearly rate that would produce that same total, so it lets you compare periods of different lengths.
Why does WealthTicker show absolute return for periods under a year?
Annualising a few months of movement exaggerates it. Under a year the plain change is shown, and from one year onward the compounded yearly rate is used.
Can I use CAGR for a SIP?
Not directly. A SIP puts in money at different dates, so each rupee has been invested for a different time. XIRR handles that by weighting each instalment by its dates.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are WealthTicker’s own calculations from public data — AMFI’s fund NAVs and disclosures, NSE’s index and FII/DII files, and the fund houses’ monthly portfolios (how we calculate). They are as of the dates stated and can be revised by their source.
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