Point-to-Point Returns

Point-to-point (PTP) returns are the most straightforward measure of mutual fund performance: how much did an investment made on Date X grow (or shrink) by Date Y? For holding periods up to one year, the return is typically expressed as an absolute percentage. For periods beyond one year, the Compounded Annual Growth Rate (CAGR) is the standard representation, as it normalises performance across different holding periods, allowing meaningful comparison between a 3-year and a 5-year return.

AMFI mandates that all mutual fund performance disclosures use point-to-point CAGR returns for periods of one, three, five, and 'since inception' — this is the standard you see in fund factsheets, advertisements, and comparison platforms. The since-inception figure is always PTP from the NFO date to the current date, expressed as CAGR.

While PTP returns are easy to understand, they carry significant limitations. The start and end dates are critical: a fund that started and ended in bullish conditions will show better PTP returns than an identical fund that started at a peak and ended during a correction, even though both funds may have been managed with equal skill. This date-dependency is why rolling returns — which compute PTP returns across all possible start dates — provide a more robust picture of performance.

PTP returns also do not capture the path of returns. A fund that rose steadily from Rs 10 to Rs 20 over 5 years, and a fund that dropped to Rs 7, rose to Rs 25, and then fell back to Rs 20, both show the same 5-year PTP return of 100% (CAGR of about 14.87%). But the volatility experienced by the investor along the way was dramatically different. Metrics like the Sharpe Ratio, maximum drawdown, and Sortino Ratio supplement PTP returns to provide a complete risk-return picture.

For SIP investors, PTP returns are not meaningful in the same way as for lumpsum investors because money is deployed over multiple dates. The correct metric for SIP returns is XIRR (Extended Internal Rate of Return), which accounts for the timing and magnitude of each cashflow.

In Indian regulatory disclosure, SEBI mandates that performance benchmarks be disclosed alongside the fund's PTP returns for identical periods, enabling direct benchmark comparison. The benchmark returns must use the same start and end dates as the fund's performance window, ensuring consistency.

Investors should treat PTP returns as a starting point for performance evaluation rather than a definitive conclusion, complementing them with rolling return analysis and risk-adjusted metrics for a complete assessment.