Mutual funds returns don’t get compounded daily or even monthly, but only annually. The interest is shown as a compounded annual growth rate (CAGR). Savepro states that CAGR is a global standard for comparing different types of assets across geographies. For example, if you are told that you will earn 10% on bonds and 15% on equities. Then you will know that annually you will earn 5% more in equities than in bonds.
According to Savepro, the reason that CAGR is followed annually and not bi-annually or every three is because it makes comparing asset classes impossible. For example, if you knew that you will receive 6% interest every 6 months on bonds and 40% every 3 years on equities then comparison becomes unrealistic. As per Saverpro if you are told that an asset will give 12% returns after 3 years, then it will mean that the interest will be compounded the second year accounting the interest earned and initial investment. Also, by the end of the year, the compound interest for the first two years will be added to the initial investment and then you will get to find returns. The accounts get compounded in the 2nd and 3rd year because you have already earned the interest. This is similar to your fixed deposit investment that provides interests every quarter. Both positive and negative returns from a fund are reflected in the fund value. Therefore, the return that you accrue will be on the return that you have already earned. Conclusively, mutual fund returns are compounded just like FD's. But, before making any financial plans, you should definitely take advice from a financial consultant or adviser like Savepro, so that the right investment plans are made. Also, since returns are accrued annually, therefore, it would be best to re-balance your asset allocation at the beginning of the year. This will be beneficial for you and the health of your financial plans. At the same time, one should always review the financial balance sheet to know the assets and liabilities. This will make the person aware of the right type of mutual funds investments. So, contact Savepro before making any financial plans or decisions in the upcoming years. For Updates Follow Us On pinterest
2 Comments
Tushar Sharma
1/23/2020 02:09:20 am
After Reading Your Blogs
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8/1/2022 06:12:30 pm
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