We send you a monthly report of what you have invested in so that you can track your progress. Do your eyes glaze over when you try and read these reports? It does have a lot of info, so for those of you who just want to take baby steps, a few simple pointers:
On the first page of your report, there is a graph titled Current Asset Allocation- take a peek. It tells you how much you have in debt (interest earning investments) and how much in equity mutual funds. If you like big words, or want to impress your better half, casually mention how your asset allocation is exactly how you planned it. Asset allocation should be based on your goals, your risk taking ability and capacity. Maintaining the right balance is crucial - you know all that stuff about not having all your eggs in one basket?
On the next pages, whichever section you look, you will find a column called current value. If you go to the bottom of the column, it tells you how much you would get if you sold everything on that list at the market price (the date the report was generated for you). Try and memorise that number! The idea is that it should be higher every month. So if you remember it, you don't have to dig through your old mails to compare it with the current one.
Warning - Keep in mind that taxes, exit loads and market conditions change daily, and this report is historical. If you do decide to sell, make sure you appraise yourself carefully about these.
OK... now for a little bit of jargon - CAGR - You will see it on the second page of your report in most of the sections. It stands for Compounded Annualised Growth Rate. CAGR is the best formula for evaluating how different investments have performed over a specific period of time, exceeding a year. Put another way, the CAGR is a mathematical formula that provides an "evened out" rate of return, suppressing the fact that there is usually volatility in prices. It allows you to view the rate of return you have earned over a period of time without the noise of price fluctuations. You can compare the CAGR of similar schemes in order to evaluate how well one performed against other in a peer group or against a market index, over the same period of time. The thing to remember is that CAGR does not tell the whole tale. Mutual funds often tout their products by quoting their CAGR numbers. They rarely specify the time frame or the risk volatility.
And then the last googly for now - XIRR ( Irregular Internal Rate of Return). Our report also provides this, because you may not just invest once into a scheme. You may keep investing in the same scheme via a Systematic Investment Plan (SIP) or an Systematic Transfer Plan ( STP). Or if you have a windfall you may put it in as a lumpsum. Redemptions and dividends also affect the cash flow. The XIIR takes the uneven flow of cash into account and then calculates your personal return on the scheme. The more irregular the cash flow, the more the XIRR will vary from the CAGR.
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