NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
An investor put Rs 1,00,000 in a scheme and the investment grew to Rs 1,44,000 after exactly 2 years, with no interim payouts. What is the compounded annual growth rate (CAGR)?
The CAGR is 20%. The investment grew by a factor of 1.44 over two years, and the square root of 1.44 is 1.20, so the annual compounded growth is 20 percent. Simply halving the 44 percent total gain to 22 percent ignores compounding.
- A22.0%
- B20.0%Correct
- C18.0%
- D44.0%
Explanation
CAGR = (1,44,000/1,00,000)^(1/2) - 1 = sqrt(1.44) - 1 = 1.20 - 1 = 20%. Dividing 44% by 2 gives 22%, which ignores compounding. 44% is the total absolute return, not annualised.
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