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 value 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%. The value multiple is 1.44, and its square root over two years is 1.20, meaning the investment compounded at 20% a year. Simple averaging of the 44% total gain would wrongly give 22%.
- A22.00%
- B20.00%Correct
- C44.00%
- D18.00%
Explanation
CAGR = (1,44,000/1,00,000)^(1/2) - 1 = sqrt(1.44) - 1 = 1.20 - 1 = 20%. Check: 1.2 x 1.2 = 1.44. The 22% figure is the simple average of 44% over 2 years. The 44% figure is the total absolute return.
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