# Returns

#### Alpha

Alpha refers to the % outperformance by funds over and above the performance of their benchmark.

It is a measure of outperformance and thus higher alpha represents a better performance keeping other factors constant.

For eg : Fund A’s returns are 12.5% vs its benchmark’s returns of 10%, that makes Alpha = 12.5% – 10% = 2.5%

Similarly, Fund B belongs to the same category as fund A and has returns = 15% & thus an alpha of 5% representing outperformance over both its peer fund and its benchmark.

#### Absolute return 3M

Absolute return 3M represents the absolute growth in the funds NAV over a horizon of 3 months. As the name suggests, it is an absolute figure and is not annualized. It is a short term performance metric.

#### Absolute return 6M

Absolute return 6M represents the absolute growth in the funds NAV over a horizon of 6 months. As the name suggests, it is an absolute figure and is not annualized. It is a short term performance metric.

#### Absolute return 1Y

Absolute return 1Y represents the absolute growth in the funds NAV over a horizon of 12 months. For a return metric spanning over 12 months, the absolute figure equals the annualized figure.

Formula = (Ending NAV – beginning NAV)/ (Beginning NAV)

For eg : Following are the NAVs of fund A on different dates

31st March 2020 : 100

30th June 2020 : 105

30th September 2020 : 125

31st December 2020 : 135

31st March 2021 : 120

Returns as of 31st March 2021 would be :

Absolute return 3M = (120-135)/135 = – 11.11%

Absolute return 6M = (120-125)/125 = – 4%

Absolute return 1Y = (120-100)/100 = 20%

As we can see that time is not being used as a variable in the formula, that makes these returns absolute.

#### 3Y average annual rolling return

Rolling returns, also known as “rolling period returns” or “rolling time periods,” are annualized average returns for a period, ending with the listed year. Rolling returns are more robust than trailing returns.

3Y rolling returns would involve going back 3 years and then calculating the past 3 year returns every day since then and then averaging those numbers.

Rolling returns in comparison to trailing returns are more likely to be an expected achievable return from the investment in the future.

#### CAGR 3Y

Compounded annual growth rate 3Y is an annualized return metric over a horizon of 3 years.

Formula = {(Ending NAV/Beginning NAV)^(1/3)} – 1

CAGR is the average growth over the horizon, the year wise returns might be erratic and uneven.

#### CAGR 5Y

Compounded annual growth rate 5Y is an annualized return metric over a horizon of 5 years.

Formula = {(Ending NAV/Beginning NAV)^(1/5)} – 1

CAGR is the average growth over the horizon, the year wise returns might be erratic and uneven.

#### CAGR 10Y

Compounded annual growth rate 10Y is an annualized return metric over a horizon of 10 years.

Formula = {(Ending NAV/Beginning NAV)^(1/10)} – 1

CAGR is the average growth over the horizon, the year wise returns might be erratic and uneven.

For eg : Following are the NAVs of fund A on different dates

31st March 2011 : 75

31st March 2016 : 150

31st March 2018 : 175

31st March 2021 : 225

Returns as of 31st March 2021 would be :

CAGR 3Y = {(225/175)^(1/3)}-1 = 8.74%

CAGR 5Y = {(225/150)^(1/5)}-1 = 8.45%

CAGR 10Y = {(225/75)^(1/10)}-1 = 11.61%