The net annualized return (NAR) helps you understand the return you earned on a yearly basis for your investment. The NAR is not a prediction of performance, rather it includes anything in the past that has affected your returns.

## How to calculate the NAR

To calculate the NAR, we need the following values:

- The dates when investments were made (cash out)
- The dates of repayment of investments and income received (cash in)
- Actual amounts invested (cash out)
- Repayments from investments, including principal and interest (cash in)
- The current date when the NAR is calculated
- The outstanding value of the investments (principal plus accrued interest until that date)

## The NAR on Mintos calculation explained

Investments on Mintos are usually made at various dates and consist of numerous underlying loans. The interest payments are made almost daily. Therefore, the formula for NAR uses actual cash flows and dates to calculate return.

The NAR is expressed as a percentage and can be calculated using the XIRR (extended internal rate of return) formula^{1}. The XIRR function calculates the Internal rate of Return (IRR) for a series of cash flows that are not evenly distributed^{2}. The XIRR formula assumes reinvestment of returning cash flows at a rate determined by XIRR. The XIRR formula runs several calculations until it finds the correct value. The reinvestment is assumed to be done at the calculated return. Because of this, the XIRR formula calculates an annual effective rate of return. The actual rate earned might be different from the assumption.

To arrive at the NAR, we use the function NOMINAL^{3} because we want to eliminate the compounding of interest income.^{4} By doing so, the return we get is comparable to the interest rate shown for Notes, which does not include any compounding effect.

## The NAR on Mintos

The NAR value you see on your Mintos Overview page measures the annualized rate of return of all your investments since you started with Mintos. The NAR is not a prediction of performance. It’s only calculated for the amount of money that you have invested with Mintos. Funds available in your Mintos account that are not invested are not included in the calculations.

The NAR includes anything in the past that has affected your returns, such as any delays, defaults, or campaign rewards. The NAR reports as a nominal interest rate (the stated interest rate of a financial instrument).

## Limitations of the NAR

The NAR doesn’t take into account the following:

- Compounding interest
- Change in market value
- Expected future losses
- Amounts overdue, not yet categorized as bad debt

NAR calculations don’t take into account provisions for a loss in value or expected future losses. Any past losses resulting from an unsuccessful or partially successful recovery of funds are reflected in the NAR calculation only after the recovery process is finalized, and any irrecoverable funds are marked as bad debt.

Funds invested in suspended loans are included in your NAR, up to the point where they are declared as unrecoverable.

## A visual example of NAR:

^{1} CFA Team, XIRR Function December, 2022 (Accessed March, 2023)

^{2} Jason Fernando, Internal Rate of Return (IRR) Rule: Definition and Example December 2022 (Accessed March 2023)

^{3} CFI Team, Returns the nominal annual interest rate January 2023 (Accessed March 2023)

^{4} Kyle Peterdy, Interest rate adjusted for compounding over a given period March 2023