NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
Ms Meera Iyer invests Rs 1,00,000 in a mutual fund scheme. After 2 years the value is Rs 1,44,000 with no interim cash flows. 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%. Dividing the 44% total return by two gives 22%, which ignores compounding.
- A22%
- B20%Correct
- C44%
- D18%
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. Simple annualisation would give 22%, which is wrong because it ignores compounding. 44% is the total return, not annual.
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