Master all three return calculation methods — absolute return, CAGR, and inflation-adjusted real return — with worked examples.
Investment returns can be measured in several ways depending on what you are evaluating. Understanding which metric to use — and how each is calculated — is the foundation of smart investing. The three most important return metrics for individual investors are Absolute Return, CAGR, and Real Return.
| Return Type | What It Measures | Formula | Best For |
|---|---|---|---|
| Absolute Return | Total gain/loss % | (EV−BV)/BV×100 | Short-term |
| CAGR | Annual compounded rate | (EV/BV)^(1/n)−1 | Multi-year |
| Real Return | Inflation-adjusted | (1+r)/(1+inf)−1 | Purchasing power |
| XIRR | Time-weighted cashflows | IRR with dates | SIP/irregular |
Absolute return is the simplest measure — the total percentage gain or loss from your initial investment to the current value.
Invested ₹50,000 in Reliance shares. Current value: ₹68,500.
Absolute Return = (68,500 − 50,000) / 50,000 × 100 = 37%
Invested ₹1,00,000 in Jan 2022. Current value ₹1,48,000 in Jan 2025 (3 years).
CAGR = (1,48,000/1,00,000)^(1/3) − 1 = 1.48^0.333 − 1 = 13.9% per year
Nominal returns can be deceptive. If your portfolio returned 10% but inflation was 6%, your real purchasing power only increased by about 3.77%, not 4%.
Nominal return: 10% / Inflation: 6%
Real Return = (1.10 / 1.06) − 1 = 1.0377 − 1 = 3.77%
Calculate absolute return, CAGR, and inflation-adjusted real return for any investment automatically.