Absolute Return is the simple, unannualized gain or loss on an investment expressed as a percentage of the original capital, regardless of how long the money was invested.
Formula: Absolute Return = ((Ending Value - Beginning Value) / Beginning Value) x 100. No compounding adjustment, no benchmark comparison.
Example: Rs.50,000 invested in an ELSS scheme grows to Rs.68,000 over the 3-year lock-in. Absolute return = (68,000 - 50,000) / 50,000 = 36%. The equivalent CAGR is only 10.78%.
When to use: Reporting performance for periods under 1 year (where annualizing distorts the picture), describing point-to-point returns in marketing material, or quoting realized P&L on a closed trade. Avoid for multi-year comparisons - it makes a 36% / 3-yr fund look better than a 12% / 1-yr fund, which is misleading.
SEBI caveat: SEBI requires mutual fund advertisements to show CAGR (not absolute returns) for any period exceeding 1 year, precisely because absolute numbers can mislead retail investors. Always ask: 'over what period?'
Related: CAGR, Annualized Return, Total Return, XIRR.