MF-Query Board

MF-Query Board

Readers are requested to send only one query at a time so that more readers get a chance. Have questions relating to any aspect of personal finance. Ask DSIJ at editorial@DSIJ.in and get your queries resolved.

Sir, I am seeking your guidance on how do I go about preparing my financial plan. Below are some relevant details.



At present, I have a home loan of Rs40 lakhs to pay off, and I am paying a EMI of Rs50,677 for the same. I'm planning to pre-pay the loan. I'm currently having investments in stocks valued at Rs 3.5 lakhs. I can save Rs60,000 every month now. Can you please suggest which MF schemes shall I invest in and in what proportion? Also, do you suggest on me adding stock investments to my portfolio, preferably some large caps through the SIP mode?

 - Sagar Chaudhari


It is nice to know that you are keen on financial planning as it proves to be a systematic way of building an investment portfolio and gives you a proper vision on how to achieve your financial goals. Regarding your query, there are various things to consider before selecting mutual funds. Say for instance, you wish to achieve your child’s PG goal which is 21 years from now. So, to invest for this goal, you need to first figure out your risk profile. This will help you determine the category of mutual funds that are best suited for you to invest in that matches your risk appetite. Even the proportions of the same would be based on your financial goals and risk profile. So, it becomes crucial for you to first get your risk profiling done and then move on to the process of selecting mutual funds. If your goal is for the short-term, then investing in debt mutual funds is recommended. However, if your investment horizon is longterm then you should be more tilted towards equity mutual funds. As from your query we can see that all your financial goals are for long-term. Hence, your portfolio should be ideally more tilted towards equity. However, again everything would come down to your risk profile. To get better results and to have a peace of mind, it is advisable to consult a financial planner to manage your investments aiming to achieve your financial goals.

Hello Sir, I regularly follow your MF section. My query is that I had invested in the Axis Bluechip Fund in the year 2016 and there is an inconsistency in the returns data of the scheme on different websites. The difference in the returns data published on various websites is extreme; ie it varies from 14.74 per cent to 55.20 per cent. I would want to know how are returns calculated? - Rutuja Patil 



There are various ways to calculate mutual fund returns. One of the most common methods adopted is CAGR (Compounded Annual Growth Rate). But apart from this, there are other ways also in which returns can be calculated, which we have listed below.

Absolute Return : Absolute return is the percentage change in the value of investment over the investment period. For instance, if you invested Rs10 lakhs and the value rises to Rs12 lakhs by the end of one year, then the absolute return of your investment is 20 per cent (2,00,000 / 10,00,000) X 100. Absolute returns are typically calculated when the holding period of an investment is less than one year.

Simple Annualized Return : Simple annualized return is calculated as : (365 / Holding Period in days) X absolute return Simple annualized returns are typically used for calculating returns from money market funds where the holding period of an investment is less than one year.

Compounded Annual Growth Rate (CAGR) : Compounded Annual Growth Rate (CAGR) is the annual average rate at which an investment has grown over a period of time. The average here refers to geometric average and not arithmetic or simple average. This means you not only earn returns on your initial investment but also on your returns. Compounded annual growth rate is calculated as: [(Final Value / Initial Value) ^ (1 / N) - 1] X 100, where N is Number of years.

Illustration: Let’s assume you have invested Rs10 lakhs on 1st September, 2015 and value of the investment as on 31st August, 2018 is Rs15 lakhs. The compounded annual growth rate calculated is 14.47%. It is calculated as follows: [(15,00,000 / 10,00,000) ^ (1 / 3) - 1] X 100

As you have mentioned in your query, the return of 55.20 per cent is absolute return and 14.74 per cent is the CAGR. So, those websites showing 55.20 per cent returns are not a case of deliberate misrepresentation but the way of calculating the returns is different. Ideally, CAGR should ideally be adopted to calculate returns than absolute returns.

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