Here is a 7-minute video that discusses the differences and similarities between the two types of annualized returns: the Compound Annual Growth Rate (CAGR) and the extended internal rate of return (XIRR).
An annualized return treats an investment in a volatile instrument (gold, stocks, debt funds) as one that compounds and calculates an average year-upon-year return. This enables easy comparison with the return from fixed income products like fixed deposits and bonds.
First the definition of an absolute return:
Absolute refers to growth without considering the investment time period. It is simply the percent difference in the money you had before investing and the money you have now.
current value = total investment x (1 + absolute return)
Absolute return = (value-investment)/investment = total gain/total investment.
The investment period is not taken into account.
A portal like money control only gives you absolute returns which is useless. Even for a SIP, it calculates return using the above formula.
Here is a screenshot from its portfolio tracker with the absolute returns marked by black rectangles.
Always consider only annualized returns for measuring portfolio growth.
Annualized Return: CAGR and XIRR
The XIRR illustrations are taken from these posts:
My exact XIRR as on date is 16.56%. Quantum says this is twice as much as bencmark returns. Too lazy to calculate net equity XIRR as I need to enter few transactions, but I am pretty sure QLTE is either an average or just above average performer in my folio. So I am going to continue investing in QLTE.
Also, regarding my investment strategy: I invest each month regardless of market levels. Sometimes, I change the amounts I invest in the funds. based on portfolio weights and performance. It is done without too much analysis. I would like to reiterate that fund reviews should only be based on personal investment performance.
You can also try out this Internal Rate of Return -XIRR Calculator
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