Mutual funds are the investment arm of a company or institutional body. After a mutual fund is set up, it is managed by a fund manager. If you are familiar with the concept of mutual funds, you must have heard about the concept of Return on Investment (ROI), which was first popularized by Benjamin Graham in his book “The Intelligent Investor”.
Equating a mutual fund’s annual return with its investment performance is a common practice among investors. However, the process is not as simple as it seems. A mutual fund’s return is determined by the investment returns of the funds it holds, which in turn are determined by its portfolio manager’s asset management decisions. The reason why many investors do not consider XIRR formula is that they confuse its meaning with that of a fund’s return.
