1) If you invest Rs. 100 ; after 1 year returns is 20% so end of the year it becomes Rs. 100 + 20= Rs. 120.
2) Now second year also you make a profit of 20% so your money is Rs. 120 + 24 = Rs. 144
3) After 2 years your money of Rs. 100 is now Rs. 144 so your
Absolute returns for 2 years is 44% whereas Annualized returns is 20% year on year.
The difference between absolute and annualised returns can be explained with an example. Suppose an investment of Rs 1,000 was made five years ago and it has grown to Rs 1,300 today, then the absolute gain would be Rs 300, i.e., a 30 per cent growth. This 30 per cent return is absolute return.
A 30 per cent return on investment would normally qualify as good but for the fact that it was realised over five years. Now if you want to know how much the investment has grown on a yearly basis, you will have to take a look at the annualised returns, which will tell you the return a fund turned in each of the years on an average basis during this five-year period, provided the gains were re-invested every year. In this case, the annualised returns works out to 5.38 per cent. Assuming that the money has been growing at a constant rate, the investment of Rs 1,000 would have grown to Rs 1,053.80 by the end of first year. In the second year, it would have been Rs 1,110.50 (by adding 5.38 per cent of Rs 1,053.80) and so on till the fifth year when it appreciates to Rs 1,300.
In all Value Research products, returns for a period of less than one year are stated in absolute terms, while over a one year period, annualised returns are stated.
People usually invest in gold in two circumstances. One is when they fear inflation rates are eroding their spending power and they want an investment that they believe will hold its value better than cash. Another is when they see banks pay such low interest rates that gold seems to offer a better return on their investment than other options like savings accounts or bonds.
During the global economic crisis, many countries have sought to increase their gold holdings so they would not be left with too much of their reserves in hard currency that could lose value.But as the price of gold drops, buying gold looks like an increasingly unpredictable business. Russia, Turkey, Azerbaijan, and Kazakhstan all boosted their gold holdings in March this year.
Is there a limit to how much gold will fall?
Gold probably will find a floor fairly soon.The major rally in gold has come to an end. Any price appreciation in three-four years will be moderate. Investors should buy gold only if they can stay invested for at least 10 years.
In addition, the metal has lost its safe-haven appeal as risk appetite has increased due to improvement in the global economic outlook. Easing inflation in major economies has also diminished the demand for safe havens.
Gold has given a return of about +18% in last 10 years, however if we consider last 3 years the loss was about –11%. The gold might come further down as people has more options of investments like real state, education, infrastructure (unlike our grand parents have only one option to convert their savings into Gold). gold might continue to remain at its current position for next few quarters and might go down as well. So I suggest you to either wait for some more time before investing in gold. However you can invest in SIP manner with long term investment of around 10 years, as that would be a good option too.