Annualised returns are annual gains that an investment earns over a specific time period.
When it comes to investments, one should definitely understand the difference between these two. An absolute return measures an investment’s performance without accounting for the amount of time committed. On the other hand, annualised returns are annual gains that an investment earns over a specific time period.
For instance, when an investment of Rs 1,000 grows to Rs 1,300 over five years, then Rs 300 is an absolute gain with 30 per cent growth. This 30 per cent return is absolute return. But when annualised, the same gain is 5.38 per cent, which means each year, over a period of five years, Rs 1,000 incrementally grows by 5.38 per cent to become Rs 1,300.