Simple return

The most basic way to measure how an investment has done is to ask one question: how much more (or less) is it worth now than what was paid for it? That answer, expressed as a percentage, is the simple return.

It makes no attempt to account for how long the money was invested, and it does not compound anything. It simply compares the start and the end.

Simple Return = (Ending value − Beginning value) ÷ Beginning value × 100

Because it ignores time, a simple return earned in three months and the same simple return earned in three years look identical on paper — which is exactly why the workbook immediately follows it with CAGR, the compounded, annualised measure used to make returns from different holding periods comparable.

An investor buys units of a scheme when the NAV is Rs 12. Some time later the NAV has risen to Rs 15.

Simple Return = (15 − 12) ÷ 12 × 100 = 25%

That 25% figure says nothing about whether it took four months or four years to get there. If a second scheme also returned 25% but the investor held it for twice as long, the two 25% figures are not telling the same story — which is precisely the comparison simple return cannot make, and annualised return can.

Chapter 7, section 7.1.1 (Simple Return), the first of four return measures the chapter builds up — simple, annualised, compounded (CAGR) and total return. Expect a direct calculation question using this formula, and a conceptual question asking why simple return alone cannot compare two investments held for different periods.

• Simple return carries no time dimension. A 25% simple return says nothing about whether it was earned in three months or three years.
• Do not confuse it with annualised return, which converts a return for one period into a comparable per-year figure, or with CAGR, which compounds.
• Simple return uses NAV to NAV; it does not deduct exit load. The investor's actual return, after exit load, is lower — see the same chapter's treatment of loads.