Excess Return is the plain gap between you and the index.
Excess Return = CAGR_strategy - CAGR_benchmark
saral.money computes both compound annual growth rates over the dates the strategy curve and the selected benchmark share, then subtracts. A positive number means you finished ahead of the benchmark. That is the whole claim it makes.
Worked example, illustrative. A strategy compounds at 18.4% while the benchmark compounds at 12.0%, so Excess Return is 6.4 points. Applied to ₹10 lakh over ten years, that gap is 10 x 1.184^10 = ₹54.1 lakh against 10 x 1.12^10 = ₹31.1 lakh. A margin that reads as six points a year is a difference of about ₹23 lakh in ending wealth.
Excess Return is not Alpha
This is the distinction the analytics screen puts side by side deliberately.
| Metric | What it accounts for |
|---|---|
| Excess Return | Nothing. It is the raw difference in annualised returns. |
| Alpha | Removes the return your benchmark exposure was always going to produce, given your beta. |
| Information Ratio | Divides active return by how much you had to deviate from the index to get it. |
A strategy with a beta of 1.5 should out-earn the Nifty 50 in a rising market. Its Excess Return will be positive and its Alpha may well be zero. Read all three or read none.
Caveats
The benchmark choice sets the number. Against a price index rather than a total return index, Excess Return is inflated by the dividend yield the price index drops, which for Indian large-caps has generally run around 1% to 1.5% a year.
It is an arithmetic difference of two geometric rates, so it does not compound the way it looks like it should. The ending-wealth gap in the example above is not simply 6.4% compounded.
It says nothing about the path. Two strategies with identical 6-point Excess Returns can have very different drawdowns, and only one of them was holdable.
Costs must already be inside the strategy return before the comparison means anything. An index has no brokerage, no STT and no slippage. Your strategy does.