Understanding Mutual Fund Factsheets

Absolute return does not account for the time period. A 50% return in 2 years is very different from 50% in 10 years. CAGR annualizes the return so investments with different holding periods can be compared on a level playing field. For example, 50% in 2 years is a CAGR of 22.5%, while 50% in 10 years is only 4.1% CAGR — clearly the first investment performed far better.

No, CAGR is not suitable for SIP returns. CAGR assumes a single lump-sum investment at the beginning, but in a SIP, money is invested periodically at different NAVs. Each installment has a different holding period. XIRR is the correct measure for SIP returns because it accounts for the timing and size of every cash flow. Most fund house websites and apps now show SIP XIRR.

Rolling returns calculate the return for every possible period of a given length within a dataset. For example, a 3-year rolling return analysis of a fund from 2010-2025 would calculate the 3-year return starting from every single day — 1 Jan 2010 to 1 Jan 2013, 2 Jan 2010 to 2 Jan 2013, and so on. This gives hundreds of data points instead of just one, showing how consistently a fund performs regardless of when the investment was made. It eliminates the bias of point-to-point returns.

XIRR can be calculated using Excel or Google Sheets. All SIP investment dates and amounts are listed as negative values (outflows), and the current portfolio value is added as a positive value on today's date. Then the =XIRR(values, dates) function is applied. Most mutual fund platforms like MF Central, Kuvera, and Groww also calculate and display portfolio XIRR automatically.

A single one-year return figure can be misleading because it depends entirely on which one-year period is being considered. Instead, the 3-year and 5-year rolling returns should be checked to assess consistency. It is also important to verify whether the fund outperformed its benchmark across different market cycles. A fund that consistently delivers 14-16% across rolling periods is generally more reliable than one that swings between -5% and 40%.

A price index (like Nifty 50) only tracks the price movement of its constituent stocks. A Total Return Index (TRI) additionally assumes that all dividends paid by constituent stocks are reinvested back into the index. The TRI always shows a higher return than the price index. SEBI mandated TRI comparison from February 2018 because it provides a fairer benchmark — the fund manager has the benefit of dividends, so the benchmark should reflect that too.

Absolutely. If a fund takes significantly more risk (higher beta) than the benchmark, it may deliver high absolute returns but still have negative Jensen's Alpha. For example, a fund with beta of 1.5 is expected to deliver 1.5x the market return. If the market returns 12% and the fund returns 16%, the CAPM expected return would be 7% + 1.5 x (12% - 7%) = 14.5%. The fund returned 16%, so Jensen's Alpha is 1.5%. But if the fund only returned 14%, the alpha would be -0.5% despite a seemingly good 14% return.

Tier-1 benchmark is the primary benchmark most closely aligned with the fund's investment universe. For a large-cap fund, it would be Nifty 50 TRI or BSE 100 TRI. Tier-2 benchmark is an additional benchmark for broader comparison, often a wider market index. SEBI requires both to be declared so investors have multiple reference points for evaluating performance.