Assess Your Portfolio’s Performance Using Benchmark

Assess Your Portfolio’s Performance


A scheme’s benchmark is an index that is decided by its fund house to serve as a standard for the scheme’s returns. It tells you how a mutual fund has performed vis-à-vis its peers and the market.


In the year 2012, Capital market regulator SEBI (Securities and Exchange Board of India) has made it mandatory for fund houses to declare a benchmark index. This benchmark is independent and is based on the objectives of your fund.


assessment of portfolio performance using bechmarks


In India, the BSE Sensex and the Nifty are the most widely followed benchmarks for large-cap funds. Examples of different market cap based benchmarks in BSE are BSE-100 index (representing the top 100 market cap stocks), the broader BSE-500 index, BSE Midcap Index (for midcap stocks), BSE Small Cap Index (for small-cap stocks), etc.


The stock exchanges also have sectoral indices representing different industry sectors. Examples of sectoral indices in BSE are BSE IT Index, BSE Pharma Index, BSE FMCG Index, etc. Hence, if you invest in a diversified equity fund that is benchmarked against the BSE Sensex, its return is compared with that of BSE Sensex.


Understanding Portfolio Performance With Respect To the Benchmark


understanding portfolio performance with respect to the benchmarks


When the market rises or falls, the fund will be impacted. Assume fund ABC is a diversified equity fund which is benchmarked against the Sensex. Thus, returns of fund ABC will be compared with those of the Sensex. If the Sensex rises by 12% over one year and the NAV of the fund rise only 6%, then it has underperformed its benchmark. If the fund does better than Sensex, it has outperformed the benchmark and vice-versa.


Now, if the Sensex declines 8% over one year and during the same period the fund’s NAV declines 6%, then the fund is said to have outperformed the benchmark.


One must note that if an actively managed fund delivers returns in-line with the benchmark, it should be considered as underperformance. This is because a professional fund manager has charged you a fee and only delivered returns equal to an index fund (a passively managed scheme that does not engage a fund manager).


Portfolio Performance – Outperformance & Underperformance


portfolio performance – outperformance and underperformance


Let us understand in practical terms, what we mean when we say that, your fund should beat the market consistently. You cannot expect the fund manager to beat the market every month or even every quarter. Your fund manager aims to beat the market and as a result, will be overweight or underweight on certain sectors or stocks relative to the market index.


Therefore it will outperform the market in some months/quarters and under perform in other months/quarters. If your fund manager is able to beat the market consistently every year or even most years it should be considered good performance. Hence,


  • Fund Performance > Benchmark, Outperformance
  • Fund Performance < Benchmark, Underperformance
  • Fund Performance = Benchmark, Underperformance


Measuring Portfolio Performance


measuring portfolio performance using benchmarks


Ascertaining whether a fund has outperformed is an important criterion while selecting a mutual fund. You can determine this looking over your fund’s historical returns.


The risk of a fund relative to the benchmark is measured by a metric known as Beta. If the beta of your fund is 1.10, you can expect 10% higher returns than the benchmark in an upward market, and 10% lower returns than the benchmark in a downward market.


A beta of 1 implies that your fund will fluctuate in sync with its benchmark. Within the same asset category (e.g. large cap funds) you will find funds with different betas. The beta will help you form return expectations. If beta is high, you can expect higher returns in up markets but also be prepared for more downside in corrections. The lower beta will reduce risk, but you should also expect lower returns.


Importance of Long-Term Portfolio Performance


importance of long-term portfolio performance with respect to benchmarks


When comparing a scheme with its benchmark, ensure that you consider the portfolio performance of the fund over 1 year, 3-year, 5-year and even 10-year returns (if the data is available). A funds ability to consistently outperform its benchmark is a highly desirable trait.


However, checking whether the fund has outperformed its benchmark is not the only criterion to select the scheme. But it is one of the important factors to invest in mutual fund schemes.


Note that past performance does not guarantee future returns. Hence, it is imperative to consult your financial provider and evaluate your risk appetite before making an investment.

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Anuj Jain May 28, 2019 0 Comments

Why Should Your Family Be Involved While Planning Your Investment Portfolio?

Given the current financial market scenario, building a strong and sustainable investment portfolio is something that one simply cannot escape. In fact, a well built and maintained portfolio is the keystone to financial success. For individuals, it is essential to determine the different asset allocations which work in conjunction towards achieving your financial goals along with keeping the risk tolerance in mind.


But if you have a family to take care of, it is important to work with all the members of the family as it no longer remains an individual financial goal, rather the family’s financial goals. Thus, it only makes logical sense to have everyone’s buy-in and inputs towards the family goal.


Money Handling Skill is an Acquired Skill


money handling skill, family involved while planning investment portfolio


While it is an age-old debate if certain skills can be taught or learned, money handling skills can certainly be learned. For some individuals, it might come naturally, but everyone requires money-handling skills.


It is important to share the goals, plans and portfolio details with other members of the family. This will enable a couple of things. Firstly, the family members know exactly what to do at the time of need. And secondly, they are aware of what needs to be done in your absence.


Financial Planning is Towards a Common Goal


financial planning towards a common goal while planning investment portfolio


Individually a finger can do a lot of powerful things, however, when combined together to form a fist, it is even a more formidable force. This holds good for financial planning as well.


Each member of the family needs to work towards a common financial goal. It is essential that you discuss and arrive at a common goal(s) for the family and work together to achieve the same. Should each member work in a silo, the result will be far below expectations.

An investment portfolio is essentially a collection of assets, which will help you achieve your financial goals. Depending on the needs and requirements of a family, you can set various financial goals. Some examples of financial goals include:


  • Paying off any credit card related debts.
  • Saving money for the retirement of the primary earners of the family.
  • Creating a sustainable budget for the family.
  • Save money towards an emergency fund.
  • Save money for children’s education.
  • Save money towards buying a house. And so on.


Setting these common goals is just the first step. You would then need to work realistically towards these goals and assess the goals on a timely basis.


Risk Appetite and Asset Allocation Needs to be Prepared for the Entire Family


risk appetite and asset allocation, family involved while planning investment portfolio


Before investing the money into different asset classes, it is important that you determine how much time you want to give the investments to grow. You should consider the age of different family members as well.


For example, if you want to create a corpus for your children’s education, you might be looking at a five to ten-year horizon. However, if it is for your retirement, the time frame is much larger.


Risk tolerance or appetite is critical as well. Are you someone who is willing to take some risks in return for higher returns? Considering your entire family, you need to strike a good balance between risk and reward.


Of course, everyone wants to get higher returns, but you should be able to do that without losing your sleep at night. The risk appetite will help you determine how much money you should invest in different asset classes.

Everyone in the Family Needs to be Aware of Where Money is and How to Handle the Same


family needs to be aware where money is and how to handle while planning investment portfolio


It is recommended that you share the investment portfolio with some members of the family. This enables them to continue with the investments if you are unable to do so. Being aware of the investments will allow them to be at a much better standpoint to take decisions when it comes to utilizing the funds.

Bonus, Windfalls, Loans, etc. Need to be Managed From a Family Standpoint


Depending on the various assets that you have invested in, you might be subject to receiving bonuses, loans etc. Taking the decisions keeping the family in mind will help you achieve the goals faster. For instance, if you receive any bonus from an insurance policy or mutual fund, re-investing them in the fund is the smarter choice.


Similarly, you need to be careful while opting for loans so that your financial goals are not hampered.

Prepare Your Children for the Real World


Preparing your children for the real world is as important as educating them. Providing them regular life lessons along with means to handle money will make them better planners and consumers. In fact, your efforts will be rewarded, as they can do their bit towards the family goal.


prepare children for the real world, family involved while planning investment portfolio


Questions such as which car to buy, which size TV is good will be easier to answer if all the family members are aware of the financial plan and are working towards it.


Thus, involving your entire family towards a common financial goal through the process of Financial Planning is the best gift to give your family.

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Anuj Jain May 23, 2019 0 Comments

Top #3 Reasons To Increase Your SIP In 2019

Should you consider the long term horizon, equity investments outperform most of their counterparts by a handsome margin. They are your best bet to build a solid corpus. Yet, the short-term volatility is something that might churn your stomach. Not to forget the inherent risks involved in dealing with equity.


A simple solution is to invest in SIP. A systematic investment plan ensures that you benefit from rupee cost averaging. Thereby keeping you at bay from swings in the capital market. By investing in a SIP, you can reap the benefits of the capital market without having to worry about the pitfalls that it comes with.


Since most of the funds are handled by experts, you no longer have to worry about the structure or tracking the market on a regular basis. We recommend you to increase your SIP by 10-15% on a yearly basis, keeping in line your salary increment at the beginning of the year.

Top 3 Reasons To Increase Your SIP In 2019:

Here are the three major reasons why you should do that favor to your portfolio and increase your SIP amount periodically.

1. Make The Most of Tax Efficiency of Mutual Funds

You invest your hard-earned money in some investment avenues and end up paying taxes as per your income tax slabs. An investment that earns you 25% returns and you end up paying 20% of it as taxes, it doesn’t really bring a lot to the table.

Investment in equity mutual fund is much more rewarding in such scenarios. Your gains from an equity mutual fund are taxed at only 10% if the amount exceeds the cap of INR 1,00,000. This is irrespective of which tax slab you belong to.

If you aren’t too keen on investing in the slightly higher risk-rewarding equity funds, debt funds are always there. Unlike their alternatives, FDs, debt funds bring in the concept of indexation. With indexation, your overall tax liability reduces thereby you do not have to worry about feeding the taxman.

2. Reach Your Goals Faster

reach your goals faster - increase your sip in 2019


One of the most prominent reasons to increase your SIP amount is to reach your goals a tad faster. When you set up an automated SIP, you can consider it as a positive EMI. One that does a world of good to your finances rather than regular EMIs.


By increasing your SIP amount on a yearly basis, you will be able to save for a vacation or buy a new car a few months ahead of your initial plan. If you have plans of taking a sabbatical, increasing the SIP is just what you need. Once you cut down on your expenses, it is only natural that your money will last longer and you will be able to create a much larger savings pool.


When you get into a habit of investing regularly, unknowingly you can handle the volatility in the market. When the market is high, you might get slightly lesser units. On the other hand, when the market is up, the additional units are all yours.

3. Early Retirement

early retirement - increase your sip 2019


How many of us think or plan for early retirement? Well, a substantial number of people do. But do we take any significant steps towards the same? Increasing your SIP will help you do just the same.


On increasing the SIP amount on a yearly basis, you are putting your best foot forward to handle and tackle the beast called inflation. And do not worry about the short-term fluctuations. As far as early retirement is concerned, you are in it for the long haul.


A SIP of as small as INR 1,000 per month can lead to a corpus amount of INR 7,57,703 in about 15 years. This comes from a total investment of merely INR 1,80,000. That is the power of compounding over a period of time.


You can choose the SIP amount and aim to reach your retirement early. So that you can focus on things you always wanted to. For instance, you can start your work on the start-up plan that you always had, pursue any dreams that you had or do philanthropy, there are numerous opportunities. 


Individuals who seek to build a financial buffer for their future, increasing your SIP in 2019 is a right step in the same direction. However, if you want to know what will be the benefits after increasing your SIP in 2019 then you can easily analyse with the SIP performance Calculator by InvestWell.

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Anuj Jain April 26, 2019 0 Comments

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