27/08/2026
Your fund's headline return isn't telling you the full story.
Two funds, same 8% average, one keeps less. Fact sheets quote the average, but what compounds in your account is the CAGR, and volatility eats the gap.
Fund A (steady): +8%, +8% → CAGR stays 8%.
Fund B (volatile): +40%, -24% → same average, but CAGR just 3.1%.
On Rs 1,00,000 over 2 years, that's Rs 1,16,640 vs Rs 1,06,400.
So the metric that matters is return per unit of risk, not just return. The ratios professionals actually use: Sharpe, Sortino, and max drawdown, never the headline number alone.
Then there's the one guaranteed cost: fees. A 1.5% expense ratio compounded over decades can quietly claim a third of your final corpus. On Rs 50 lakh over 30 years, a 1.5% vs 0.2% gap is tens of lakhs.
How professionals think: compare CAGR not averages, judge on risk-adjusted ratios, and minimise fees and taxes while diversifying the rest.
Headline return is marketing. Risk-adjusted return is the truth. Chase risk-adjusted return, survive the drawdown.
Save this for the next time a big number catches your eye.
Disclaimer: This is for Educational Purpose only. The general topic and information do not aim to influence the investment/trading decisions of any investors. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
(CAGR vs average return, Sharpe ratio, expense ratio impact, risk adjusted returns, volatility drag)
