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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance

A scheme's NAV was Rs 50.00 at the start of the year and Rs 60.50 two years later, with no dividends. What is its compounded annual growth rate (CAGR)?

The CAGR is 10% a year. The NAV grew by a factor of 1.21 over two years, and 1.10 squared equals 1.21. Dividing the 21% total return by two would wrongly ignore compounding and give 10.5%.

  1. A10.50%
  2. B21.00%
  3. C10.00%Correct
  4. D11.00%

Explanation

Growth multiple = 60.50 / 50 = 1.21. Since 1.10 squared = 1.21, the CAGR is 10%. The 21% option is the total return over two years and ignores annualisation. The 10.50% option simply halves the 21% and ignores compounding.

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