NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
Ms. Anita Rao invests Rs 1,00,000 in a mutual fund scheme. After 3 years the investment is worth Rs 1,33,100, with no interim cash flows. What is the compound annual growth rate (CAGR)?
The CAGR is 10% per year, because Rs 1,33,100 divided by Rs 1,00,000 equals 1.331, which is 1.10 cubed. Dividing the total gain by three gives about 11%, which ignores compounding and is therefore incorrect.
- A11.0%
- B10.0%Correct
- C9.0%
- D33.1%
Explanation
CAGR = (1,33,100/1,00,000)^(1/3) - 1 = (1.331)^(1/3) - 1. Since 1.1^3 = 1.331, CAGR = 10%. Simple average (33.1%/3 = 11.03%) ignores compounding and overstates the return.
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