Calculating Returns

How does one calculate the actual return on a mutual fund scheme, whether it is SIP/equity/debt or some other type of investment? Should tax and inflation be deducted to find the correct return?

MLF’s Reply:  One of the best ways to calculate the returns on your mutual fund portfolio is to use the automated service of Computer Age Management Services, the registrar and transfer agent for most mutual funds.

Given below are the links to the service: Consolidated Portfolio Statement: http://goo.gl/oWtMVk
Realised Gains Statement: http://goo.gl/nyXJsm
The returns, would be based on the NAV of the schemes; hence, these are not adjusted for tax or inflation. You could also check your consolidated account statement of all the registrars’ at http://goo.gl/yVlbC8

Post-tax returns?
If you are looking to compare returns over multiple products, such as bank fixed deposits (FDs), corporate FDs, etc, it would make sense to calculate the post-tax returns to get an idea of how tax-efficient your investments are.

Inflation-adjusted returns?
As inflation would be a constant factor, the rate may not be required to calculate real returns of your portfolio (adjusting for inflation), if you are just comparing returns on different assets. However, you may find it interesting to know whether or not your investments are beating inflation.

Have a Mutual Fund Query? Try  Moneylife Foundation’s Mutual Fund Helpline. Submit your query here: moneylife.in/mfhelpline.html

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COMMENTS

pravsemilo

2 years ago

CAMS calculation on Consolidated Portfolio Statement is flawed. It is a days weighted average of returns and can sometimes show an XIRR of 100+% whereas the absolute profit would be 20 odd %.

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NRE-FD or Debt Funds?

I am an NRI now and my income in India is not taxable. Through some channels, I was being asked to buy gilt and long-term debt funds. But a simple NRE-FD makes more sense to me for the fixed-income product category as it’s tax-free.

MLF’s Reply: Debt schemes of mutual funds invest in low-risk (please note: not risk-free) bond securities and money-market instruments. As you may be aware, interest rates and bond prices are inversely related—when yields rise, bond prices (or NAVs of debt schemes) fall and vice-versa. Debt schemes are further categorised into long-term and short-term, depending on the duration (time to maturity) of the securities in which they invest. Long-term debt schemes, which have a longer tenor, are more sensitive to change in interest rates and can be highly volatile.

Therefore, your returns from gilt and long-term debt schemes would depend on the timing of your purchase and exit. It is important to note that bond yields are hovering around 8.50%, as the Reserve Bank of India (RBI) has kept the benchmark interest rate unchanged at 8%. Thus, given the high-yield scenario, it may be a good time to invest in debt schemes.

If you are looking for stable, non-volatile, returns and not having to keep a track of interest rate cycles, a bank fixed deposit would be a better option.

You may also find it interesting to read “Safe & Higher Returns: Look beyond Bank FDs”; “SIP in Bond Funds”; “Five Reasons not to Buy Debt Funds” .

Have a Mutual Fund Query? Try  Moneylife Foundation’s Mutual Fund Helpline. Submit your query here: moneylife.in/mfhelpline.html

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