Learning centre: How well is my investment doing? – Smart Money News

There are many ways to measure the return on your investments. It pays to understand which method is being used to review your investment performance

Illustration by Siddhant Jumde

When it comes to investing, people are besotted by the performance of the investment. Yet many investors grapple with making sense of the different types of returns that the same investment indicates and how their investment has fared. For instance, what if the 10-year rolling return from the S&P BSE Sensex on January 1, 2022 was 14.32 per cent, while on the same day the 1-year return was 23.64 per cent? The same instrument, on the same day, indicating two different performance indicators—which can be quite confusing. Let us look at the different types of returns and what it means to your investments.

When it comes to investing, people are besotted by the performance of the investment. Yet many investors grapple with making sense of the different types of returns that the same investment indicates and how their investment has fared. For instance, what if the 10-year rolling return from the S&P BSE Sensex on January 1, 2022 was 14.32 per cent, while on the same day the 1-year return was 23.64 per cent? The same instrument, on the same day, indicating two different performance indicators—which can be quite confusing. Let us look at the different types of returns and what it means to your investments.

Absolute Return

This simple return indicates the return your investment earns on the initial investment. The absolute return on the Sensex between January 1, 2010 and January 1, 2022 works out to 237% {(59,183.22—17,558.73)/ 17,558.73×100}. There are many investors who would be ecstatic with this kind of return.

Annual Return

This type of return measures the investment’s performance from the beginning to the end of the year. For instance, the average annual return on BSE Sensex between Jan. 1, 2021 and Jan. 1, 2022 works to 23.64% {(59,183.22—47,868.98)/47,868.98 X 100}.

Annualised Return

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