How to calculate CAGR return in mutual fund
Investing in mutual funds can be a great way to grow your wealth and achieve your financial goals. However, it’s important to understand how to calculate the return on your investment. One metric that is commonly used to measure investment performance is CAGR or Compound Annual Growth Rate. In this article, we’ll guide you through the step-by-step process of calculating the CAGR return in mutual funds.
Gather necessary information
Before you can calculate the CAGR return in mutual funds, you’ll need to gather some information. This includes the starting and ending value of the investment, as well as any dividends or capital gains distributions received during the holding period. You can find this information on your account statement or by logging into your online brokerage account.
Calculate total return
The first step in calculating the CAGR return in mutual funds is to determine the total return of the investment. This is calculated by adding any capital gains distributions or dividends received to the ending value of the investment and subtracting the initial investment amount. For example, if you invested $10,000 in a mutual fund and received $500 in capital gains distributions and dividends and the ending value of the investment is $12,000, your total return would be $2,500.
Determine holding period
The next step is to determine the holding period of the investment. This is the amount of time that has elapsed between the initial investment and the ending value. For example, if you invested in January 2019 and sold in December 2021, your holding period would be 3 years.
Calculate CAGR
Now that you have the total return and the holding period, you can calculate the CAGR return in mutual funds. The formula for CAGR is:
CAGR = (Ending Value / Initial Value)^(1 / Number of Years) - 1
Using our previous example, the CAGR would be:
CAGR = ($12,000 / $10,000)^(1/3) - 1 = 7.19%
So, the CAGR return in this mutual fund investment is 7.19%.
Conclusion
Calculating the CAGR return in mutual funds is a useful way to evaluate the performance of your investment. By following these steps, you can easily calculate the CAGR of your mutual fund investment and make informed decisions about your portfolio.
