The historical return of any financial entity describes its past performance. Experts keep track of this data to analyse and predict the future returns of a financial asset. Historical or past returns also help you determine the variables causing the growth or fall of a fund, bond, stock, and security.

If you are keen on buying mutual funds (MFs), you shouldn’t do so without analysing the fund’s previous performance or history. This is one of the best ways to zero in on the funds that can provide you high returns at low or moderate risk.

How to calculate the historical value or return of MFs?

Before reading up the formula for calculating this figure, you should know the timeline considered for tracking a fund’s past performance. Relevant authorities typically record an MF’s historical or previous return from the start of a calendar year to the end of the same year. For instance, you can determine an MF’s past performance beginning from January 1 to December 31of a particular year.

However, basing mutual funds’ historical returns on only a single year’s data is grossly insufficient, as it does not accurately capture market fluctuations. Therefore, analysts compile historical annual returns over many years to observe a trend in a particular MF. This information provides them with the previous average returns of an MF.

Here is how you calculate a single year’s historical or past return:

You cannot figure out the average past return of an MF before computing the return for individual years. So, you begin by subtracting the latest price with the oldest price of an MF and then divide the answer with the oldest MF price.

For instance, suppose MF ABC’s closing price on 31 December 2019 was Rs. 2500. The same scheme’s closing price in December 2020 stands at Rs. 3200. Then,

Historical or previous return for ABC = 3200 – 2500 = 700, which you will further divide by the oldest available price of ABC.

700/ 2500 = 0.28 or 28%

The historical or past return for MF ABC comes out to 28%.

Additional Read: What Are the Average Returns on Mutual Funds?

How to calculate the average historical value or returns on MFs?

Once you’ve calculated year-wise historical returns as shown in the section above, taking out their average is relatively easy. Provided below is the representational data for MF ABC for the last 5 years.

  • December 31st 2016 – 20%
  • December 31st 2017 – 22%
  • December 31st 2018 – 24%
  • December 31st 2019 – 25%
  • December 31st 2020 – 28%

To find out the average historical value of MF ABC, you simply need to add all the 5 values listed above and divide them by 5.

Average historical value of ABC = (20% + 22% + 24% + 25% + 28%) / 5 = 23.8%

Additional Read: How are Mutual Funds Returns Calculated?

The bottom line

By calculating the historical return of an MF, you get a fairer idea of the ones to invest in, and more importantly, the ones to ignore.

Looking for a reliable way to invest in MFs or start a SIP? Well, then turn to one of India’s most trusted financial services company – Tata Capital Moneyfy app. With us, you can invest in a variety of financial products online. Click here to learn about our entire services spectrum and start your mutual fund portfolio today!

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