Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 25 I Intermediary

Absolute Returns

Our sole reason to invest is to create wealth through the investment choices we have made.

Absolute returns are one of the many parameters which help you see the growth of your money. It provides you with point-to-point returns which tell you the rate at which an asset has appreciated or depreciated over time.

Absolute return is independent of any benchmark and does not depend on any factor other than the asset’s value as against a relative return which measures a fund’s performance compared to a benchmark or the overall market performance.

To understand it better, let’s take an example, say you invest ₹1,000 and after 3 years it grows to ₹1,500. The absolute return would be 50 percent, indicating a profit of ₹500 on an investment of ₹1,000. Here, there is no calculation of annualised returns or the CAGR. Even if it would take 10 years for the returns to move from ₹1,000 to ₹1,500, the absolute return would still be 50 percent.

Absolute returns aim at profits from the rise and fall of share prices. However, it has one disadvantage. Absolute returns do not give a picture of the fund’s volatility nor does it consider the time period, therefore, making the number appear larger. CAGR or Compound Annual Growth Rate is quite different from absolute returns as it represents an annual growth rate over a period of time. It gives you the rate at which the investment would have grown annually, had it compounded at the same rate each year.

Absolute returns aim for profits from the rise and fall of share prices and stock market prices. So, it is important to analyse a fund’s growth and access other measures like CAGR, annualised returns etc, in addition to absolute returns.