From Team SBDU
Ramesh is an investor with NJ Partner Mr. Irani since 2011. During the period Mr. Ramesh has transacted several times in Mutual Fund. Very recently, Ramesh’s son has also now involved in the decision making process in Investment. So Mr. Ramesh shared his valuation report with his son. Seeing the valuation report where the returns were negative his son made a call to Mr Irani and was quite upset as to why the portfolio is not performing despite the long association of Mr. Ramesh with Mr. Irani.
Mr. Irani was quick to act and he said that he would meet his son along with Mr. Ramesh with Mutual Fund Performance report which gives the exact picture of what Mr. Ramesh has profit/ loss from his mutual fund investment all during his investment relationship.
Since 2011 along with the percentage returns, which the valuation report would fail to show.
The same report is available on the ClientDesk at CD Web > Consolidated > Performance Report.
To understand how the report is generated and how it helps Mr. Ramesh and his Son understand the exact profits and returns the portfolio have generated let us take up the transaction which Mr. Ramesh has done over the period and how his Valuation report would look like and then we would understand how the Mutual Fund Performance report is made.
* Though the units are switched on exchange and the client would not receive any money in the bank the transaction type We capture on Exchange is Redemption and Purchase into the new Fund
Hence Valuation Report would look like
NAV as on 2nd December 2019 of Kotak Emerging Fund : 36.21
NAV as on 2nd December 2019 of SBI small Cap Fund : 53.75
Hence valuation report would show that the investor is making a loss which sent a jittery signal to the son of Mr. Ramesh. Looking at the Valuation report, Mr. Ramesh’s son sounds perfect that there is a no gain at all and its loss of 3,488/- in his portfolio.
Let us sit back and clear the doubt and wrong perception created by the Valuation Report:
The 1st step in this direction is to understand (bank cash-flow) the amount paid by the investor from his bank for the investments and the amount he has received in his bank from his investments.
If we look at the transaction report and see how much of the investment came from the bank account and how much it went back to the back Account you will find the below answers:
# Amount Paid By Mr. Ramesh: The money which came from the Bank Account are the lumpsum Purchases and the purchases made through SIP, which in our case are as follow:
So a total investment which came from the Bank Account is Rs. 2,6,0000/-
# Now, what went Back to the bank Account?: Generally, the redemption proceeds and the Dividend Payout go back to the Bank Account and let us check what has happened in the our case.
In our case the client have not redeemed anything and not taken back any money. But he do have received dividend payouts from his investment in Reliance Growth Fund-Div. If you total out the dividend payout which he has received into the bank account its 12,765/-
# The current value of the Investment is 5,72,281/-.
So the question is what kind of Gain the investor have made through his tenor of investment which is way back in the Year 2011.
To answer it we just need to do a simple calculation.
(Current Value of Investment) + (What you have received back in your bank account) – (What you have paid from bank account)
Which in our case would be 5,72,281 +12,765 -2,60,000 = 3,25,046/-
So in actual client have earned an amount equal to 3,25,046/- through his life of investment which is no way getting reflected in the valuation report.
So now the question is how to find this amount from the system and whether it is possible on the click of the mouse or not. The answers of all these questions & doubts raised by investor lies in the Performance Report.
The amount 3,25,046 will gets gets reflected into the performance report when you check it.
Let us understand how the performance report works:
The performance report have the following columns for the period you select.
Net Gain between the selected period is calculated as per following formula:
Current Investment Value + (Total Redemptions +Switch out+Dividend Received) - (Investment Value + total Investment +Switch In)
In a nutshell to calculate the net gain we add the amount which we have received back to the current investment value and subtract the same with the total value of the investment.
So lets go back to our case of Mr. Ramesh and how the performance report would show the actual gain which Mr. Irani have made during his tenor.
Performance Report:
For that we have to go the performance report available on the ClientDesk: CD Web > Consolidated > Performance Report.
Select Mutual fund as product and select the period specific report from the filter. As we want to calculate the gain from inception you have to select the starting date as a date beyond 03/03/2011. If you don’t know the exact date of the start of the investment of the investor you can select a very old date like 01/04/1996 which for sure would be a date before the start date.
So here for Mr. Irani we would be selecting the date in the period 01/04/1996 to 02/12/2019 assuming you are opening the report on 02/12/2019. In doing so the following report would be generated
As the value of investment on 01/04/1996 is zero
Now lets calculate the net gain using the formula shown above
Current Investment Value +(Total Redemptions +Switch out+Dividend Received) - (Investment Value + total Investment +Switch In)
> (Total Redemptions + Switch Out + Dividend Received): (6,30,576+2,06,640+12,765) = 8,49,981
> (Investment Value + Total Investment+ Switch In): (0+8,90,576 + 2,06,640) =10,97,216
> Net Gain: (572281.07+849981.14-1097216.44) = 325045.77
So that's how the net gain would be made available at one click of the button to the investor and Mr. Ramesh and his son can be assured of that in long term his investments are actually doing very good for them contrary to what is seen in his valuation report.
We are also showing the investor the return which is generated for the investor during the selected period. The return which is shown in the performance report is calculated using the cash flows of the investor all during the selected period which gives him true picture of the returns which in our case would be
The investor during the tenor have earned a 9.98% annualized return which would be displayed in the performance report.
Happy Investing!!
Note: The story conveyed in this article does not represent any actual/real investment scenario. Further, the investment data provided here are on an assumption basis.
Disclaimer: Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.