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 24 I Intermediary

Compound Annual Growth Rate

What you should know about Compound Annual Growth Rate (CAGR)

We invest in order to create wealth. To achieve this, it important to let your investments ‘compound’. This is where the concept of Compounded Annual Growth Rate (CAGR) comes in the picture.

Some say absolute returns is the right way to calculate returns. However, absolute returns take the initial investment amount and the maturity amount when calculating returns, whereas CAGR gives an idea on how much you wealth has grown over a specific period. The CAGR method measures the percentage of the increase or decrease of an investment year-on-year. It takes in account the tenure of an investment period giving you a more accurate and comparable earnings percentage.

CAGR follows a formula to compute returns:

CAGR (%) = Absolute Returns/Investment Tenure (years).

When investing, it is important to consider the CAGR over absolute returns as it’s not just about higher returns but also about faster and greater returns. The quicker your principle grows the more you would allow your investments to grab the compounding benefit. CAGR allows you to evaluate your options more efficiently and when investing in mutual funds, the best way to calculate more efficiently would be CAGR.

CAGR helps you or the fund managers compare investments based on their returns in the most accurate way despite the rise and fall in value over time. When investing, you can also compare the CAGR of two alternatives if you need to evaluate the performance of a stock to its peers or the market index. CAGR does not reflect investment risk, though during market volatility, the investment may appear erratic and uneven.