Absolute return is the return that the Mutual Fund houses have given over a specified period.
No matter about type of return (returns/gains/losses) that the Mutual Fund provides the absolute return without comparing to any benchmark Index.
In other words, Absolute Return and Relative Return both are different from each other, because the absolute return is concerned with the return of a particular asset and doesn’t compare it to any other measure.
The goal of the absolute return is to always have a positive return regardless of the market.
Importance of Absolute Return
- It helps to the diversified portfolio for better returns.
- It reducing overall portfolio volatility.
- It is simple to calculate.
- It helps in improving a portfolio’s risk-adjusted return.
- It helps to broaden the sources of investment returns.
- It helps in limiting losses in down markets.
Formula to calculate Absolute Return
How to Calculate Absolute Return?
For example, If a mutual fund provides current value is Rs 6000 and the investment value is Rs 4000 then the absolute return is (6000-4000)/4000 and the Absolute Return is 50%.
When to use Absolute Return
For those investors who are willing to take the risk for short and long term gains, absolute return analysis can be used for choosing the mutual fund. Investors can gain good returns if invested in the right funds for the long-term horizon.