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Mutual fund investments can give you returns in various forms such as dividends, capital appreciation, and issue of bonus units if the fund has been performing reasonably well. While investing in a mutual fund, it pays well to compute returns on your investment after taking all these factors into consideration. This is required for the purpose of benchmarking as well as taking decisions to stick with a particular fund or to move out of it. Following may be considered while calculating your returns from investment:

Absolute and Annualized returns (Growth Scheme)
Absolute returns are returns wherein the investment duration is not taken into account.
It also pays to consider absolute and annualized returns for the purpose of computation of your total returns. Suppose you buy 100 units of a mutual fund for Rs. 1000 on January 01, 2008 and sell all your units on March 31, 2008 for Rs. 1200. In this case you make a profit of Rs. 200 on an investment of Rs. 1000. Hence your absolute returns expressed in terms of percentage is 20% (200×100/1000).

In case of annualised returns, the investment duration is taken into account, and then annualised to arrive at the correct picture…
As per the above example, as you have made these returns over a period of just 3 months, your annualized returns are a healthy 80% (200x100x12/1000×3).

Returns of Dividend Pay-out
Here you will have to take the dividend amount received by you for computing your returns. Thus as per the above example, on an investment of Rs. 1000 on January 01, 08, if you get a dividend of Rs. 100 on March 31, 08, your absolute returns are 10% (100×100/1000), while your annualized returns are 40% (100x100x12/1000×3).

Returns of Dividend Reinvestment
In case of dividend reinvestment schemes, you do not get the dividend amount in cash. Rather dividend is invested back in the scheme to buy additional units for you. Thus your corpus keeps on increasing with the amount of dividend declared by the mutual fund ploughed back to increase the number of units held by you.
Suppose you buy 100 units of a mutual fund for Rs. 1000 on January 01, 2008 and the fund declares a dividend of Rs. 120 on March 31, 08, which is used to buy additional 10 units. In this case your total  holdings have become 110 units and suppose on June 30, you sell these units at Rs. 13 each, your total redemption proceeds will be Rs. 1430 (110×13). Your profits will be Rs. 430 on an investment of Rs. 1000, leading to absolute returns of 43% (430×100/1000). Your annualized returns will be 86% (430x100x12/1000×6) as you have generated these returns in 6 months.

Thus mutual funds may be financially rewarding for you in more than one ways. It helps if you keep a tab on your investment and see it grow over a period of time.

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