How to Calculate Mutual Fund Returns Manually?
Published on: January 1, 2026
While online calculators provide instant results, understanding the underlying mathematics of how mutual fund returns are calculated can give you a deeper appreciation of your investments. It empowers you to verify the numbers shown on fund statements and understand exactly how your money is growing. There are different methods to calculate returns, and the right method depends on the type of investment (lump sum or SIP) and the time period. This detailed guide of over 800 words will walk you through it.
1. Absolute Return (Simple Return)
This is the most basic method and is only suitable for calculating returns on a **lump-sum investment held for less than one year**. It shows the total percentage growth of your investment in a straightforward manner, without considering the time period.
Absolute Return (%) = ((Current Value - Initial Investment) / Initial Investment) * 100
Example: Suppose you invested ₹50,000 in a mutual fund and its value became ₹55,000 in 10 months.
Absolute Return = ((55,000 - 50,000) / 50,000) * 100 = 10%
Important: This method is misleading for periods longer than a year because it doesn't account for the effect of annual compounding. A 20% absolute return over 2 years is very different from a 20% return in one year.
2. Compounded Annual Growth Rate (CAGR)
CAGR is the industry-standard method for calculating returns on a **lump-sum investment held for more than one year**. It tells you the average annual growth rate of your investment if it had grown at a steady rate over the entire period. It is a much more accurate measure than absolute return for long-term investments because it accounts for compounding.
CAGR (%) = [ ( (Current Value / Initial Investment) ^ (1 / Number of Years) ) - 1 ] * 100
Example: If you invested ₹1,00,000 and its value became ₹1,80,000 in 5 years.
CAGR = [ ( (1,80,000 / 1,00,000) ^ (1 / 5) ) - 1 ] * 100
CAGR = [ ( 1.8 ^ 0.2 ) - 1 ] * 100 = [ 1.1247 - 1 ] * 100 = 12.47%
This means your investment grew at an average rate of 12.47% every year for 5 years. This is the number you see when funds report their 3-year, 5-year, or 10-year returns.
3. For SIP Investments: The Superiority of XIRR
Calculating returns for a Systematic Investment Plan (SIP) is more complex. You are investing multiple, small amounts at different points in time, each at a different NAV. Therefore, using a simple method like Absolute Return or CAGR would be highly inaccurate. The correct and most precise method for calculating SIP returns is **XIRR (Extended Internal Rate of Return)**.
XIRR calculates a personalized, annualized rate of return based on the exact timing and amount of each of your cash flows (your monthly SIPs and your final withdrawal). The formula is complex and is best calculated using spreadsheet software like Microsoft Excel or Google Sheets, which have a built-in XIRR function.
How to Calculate XIRR in Excel: A Step-by-Step Guide
- Open a new Excel or Google Sheet.
- Create two columns. In the first column (e.g., Column A), enter the dates of all your SIP installments.
- In the second column (e.g., Column B), enter the SIP amounts as **negative numbers** (e.g., -5000), because they are cash outflows from your pocket.
- In the last row of your data, enter the date you are checking the value (or the redemption date) in the date column. In the amount column, enter the total current value of your investment as a **positive number**, as this is a potential cash inflow.
- In a separate cell, use the formula
=XIRR(B1:B13, A1:A13), where B1:B13 is the range of your amounts (values) and A1:A13 is the range of your dates. - Press Enter. Excel will give you the XIRR as a decimal. Multiply it by 100 or format the cell as a percentage to see your true annualized return.