NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
An investor invested Rs 1,00,000 in a growth option scheme and the investment grew to Rs 1,44,000 after exactly 2 years with no interim cash flows. What is the compounded annual growth rate (CAGR)?
The CAGR is 20%. Total growth is 1.44 times over two years, and the square root of 1.44 is 1.20, so the investment compounded at 20% a year. Dividing 44% by two gives 22%, which ignores compounding and is incorrect.
- A20%Correct
- B22%
- C18%
- D44%
Explanation
CAGR = (1,44,000/1,00,000)^(1/2) - 1 = (1.44)^0.5 - 1 = 1.20 - 1 = 20%. Simply dividing the 44% total gain by 2 gives 22%, which ignores compounding and is wrong. Check: 1.2 x 1.2 = 1.44.
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