Measuring Returns — CAGR, Absolute, XIRR, Rolling Returns
A fund's return can be stated as an absolute return, a CAGR, an XIRR or a set of rolling returns. This lesson explains what each one measures, when it is used and how SEBI requires scheme returns to be shown.
Absolute return and CAGR
Absolute return is the total percentage change over the whole period: (end value − start value) ÷ start value. It makes no adjustment for time, so 60% earned in three years and 60% earned in ten years look the same.
CAGR, the compound annual growth rate, turns a multi-year change into a yearly compounded rate: (end value ÷ start value)^(1/years) − 1. It is the single yearly rate that, compounded, links the start value to the end value. For a gain over several years, dividing the absolute return by the number of years gives a higher figure, because that shortcut ignores compounding.
XIRR for money invested on many dates
CAGR assumes one amount invested at the start. In a SIP, money goes in on many dates, so each instalment has been invested for a different length of time.
XIRR handles this. It uses the date and amount of every cash flow and finds the one annualised rate at which all the instalments, each growing from its own date, add up to the final value. That is why XIRR is the usual method for SIP returns.
Point-to-point and rolling returns
A point-to-point return is measured between two chosen dates, and it depends on those dates. Move either one and the figure can look very different.
Rolling returns repeat the calculation for every period of a chosen length, for example every three-year period in a scheme's history. The result is a range of outcomes across many start dates, so the picture does not rest on one pair of dates.
How scheme returns are shown
Under SEBI's performance-disclosure rules, scheme performance for 1, 3 and 5 years and since inception is shown as CAGR, together with the point-to-point return on ₹10,000. A scheme that is 6 to 12 months old shows simple annualised growth, and one under 6 months old shows no performance.
A scheme's return is compared with its benchmark's over the same period and by the same method. Every return figure describes the past: past performance may or may not be sustained in future, and the value of a market-linked fund can fall.
Rules at a glance
One scheme, two start dates (illustrative)
Assumed figures: a scheme's NAV is ₹50 on 1 January 2023, ₹40 on 1 January 2024 and ₹57.60 on 1 January 2026.
Measured from 1 January 2024, the NAV has grown from ₹40 to ₹57.60 in two years: (57.60 ÷ 40)^(1/2) − 1 = 1.44^(1/2) − 1 = 20% a year. Measured from 1 January 2023, it has grown from ₹50 to ₹57.60 in three years: 1.152^(1/3) − 1 = 4.83% a year.
Same scheme, same end date; only the start date moved. Rolling returns exist to show this spread.
Absolute return and CAGR (illustrative)
- Assumed figures, for arithmetic only: ₹1,00,000 invested in mutual fund units is worth ₹1,72,800 after exactly 3 years.
- Absolute return = (1,72,800 − 1,00,000) ÷ 1,00,000 = 72,800 ÷ 1,00,000 = 72.8%.
- CAGR = (1,72,800 ÷ 1,00,000)^(1/3) − 1 = 1.728^(1/3) − 1 = 1.20 − 1 = 20% a year.
- Check by compounding: ₹1,00,000 × 1.20 = ₹1,20,000; × 1.20 = ₹1,44,000; × 1.20 = ₹1,72,800.
- Dividing the absolute return by the years gives 72.8% ÷ 3 = 24.27%, which overstates the yearly rate because it ignores compounding.
Result. The absolute return is 72.8% and the CAGR is 20% a year, not 24.27%.
Key points
- Absolute return is the total percentage change, with no adjustment for time.
- CAGR is the yearly compounded rate that links the start value and the end value.
- XIRR is the usual method for SIP returns because it uses the date and amount of every instalment.
- Rolling returns show how results varied with the start date; a point-to-point return depends on the two dates chosen.
- Scheme performance for 1, 3 and 5 years and since inception is shown as CAGR.
Common misunderstandings
- Absolute return divided by the number of years is not the CAGR: that shortcut ignores compounding and overstates the yearly rate.
- CAGR is not the right measure for a SIP: it assumes one amount invested at the start, whereas XIRR uses every instalment's date and amount.
- A return figure is not a forecast: every measure describes the past, and past performance may or may not be sustained in future.
Questions people ask
Does a CAGR of 20% mean the scheme rose 20% every year?
No. It is the single compounded rate that links the start and end values; the yearly results in between may have differed widely.
Why can a SIP's absolute return differ so much from its XIRR?
Because the two are not comparable: absolute return makes no adjustment for time. For a short SIP, whose instalments have been invested for less than a year on average, it looks smaller than the XIRR; for a long SIP it can look larger.
How is a scheme's return compared with its benchmark?
Over the same period and by the same method.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026 — performance disclosure and advertisements
- Standard definitions of absolute return, CAGR, XIRR and rolling returns (plain mathematics)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.