Understanding Equity Returns & setting our Expectations – ROLLING RETURNS

Stock Markets give good return in long term is what has been continuously conveyed from all directions. But how long is long term, what should be my return expectations during my investment period, what is the return I would get at the end of my investment period – the questions are many!

We shall see if we could get any answers by looking at the rolling returns of the fund rather than just the point-to-point returns as specified by the fund houses. Typically, a point-to-point return of the fund for say 3 years will be calculated by looking at the start date NAV 3 years back & the latest NAV as on today. But many a times, the returns we get as an investor may not be the same as published by the fund house as the start / exit points for us may be different for each investor.

In Rolling Returns, for example if we would like to calculate for a 3-year period – what we do is we take up all possible 3 year return of the fund over a long period of time & then take an average to see how the fund has performed over different time periods of 3 years since its inception. For example, if a fund has begun on 9th July 1998, the rolling return for a 3-year period would capture all possibilities starting from 9th July 1998 to 8th July 2001, 10th July 1998 to 9th July 2001 & so on till 14th of May 2016 till 13th of May 2019 [current date as on writing this post]. This return would show the fund’s consistency over a period of time & is much better measure than looking at just the point-to-point return.

Now let us take the example of a fund – ICICI Prudential – Large & Mid Cap fund; one of the consistent performers in its category & which has been in existence since 9th of July 1998 (for about 21 years now)!

Rolling returns of the fund over a 1-year period since inception: 


As we can see from the above figure, for a one-year period, the fund has given a maximum of 231.74% & a minimum of -52.88% even though the average one-year return across all possibilities was around 23.51%. So when you invest in this fund for just one year, we should expect as per the past performance, at least 22.73% of the times negative return; we may also end up in single digit return around 17.15% of the times & greater than 30% return around 32.31% of the times. Hence though the average return may be 23.51%, the returns were hovering between -52.88% to 231.74% and you would get that return based upon your entry & exit time.

Now the question comes – do we have to time our entry & exit? The answer is simply NO – because we really do not know when the market is up & when it is down. Instead, when we just extend the time period of our investments, we see that the probability of getting a negative return diminishes because we would have invested in both the ups & downs of the market (AND) more importantly the probability of getting a better return than any other asset classes increases.

Rolling returns of the fund over a 3-year period since inception: 


Rolling returns of the fund over a 5-year period since inception:


If you look a this 5-year period, the probability of negative return has become ZERO. Still, there is a 17.14% probability that you may end up in a single digit return & that may even 1.71% once.

Rolling returns of the fund over a 7-year period since inception:


Rolling returns of the fund over a 10-year period since inception:


For a 10-year period, we see that the minimum return the fund has delivered is around 9.23% & at the same time you may end up with this return just 2.48% the times across all 10-year investment period.

From the above data, it is clear that the longer your investment horizon the better will be risk adjusted return and the probability of loss also becomes almost ZERO.

Though, future is always unpredictable, in a growing economy like India, we can expect robust stock market growth for at least next decade or so. But we should also understand that this return is NOT going to be linear & we will have to go through a series of negative returns in between! There is no other way out…

Care has been taken to provide accurate data information. 
Still any errors may not be ruled out...
Take the article with a pinch of salt to understand the concept only!

Help File for Mutual Funds P&L Statement Download

Confused how much Gain / Loss to be reported out of your Mutual Funds redemption while filing your Income Tax Returns?

We have made this task simple – now you can download the Profit & Loss Report as an Excel (or) PDF from your NJ CLIENT DESK PORTAL and simply forward it to your auditor.

Given below is the HELP FILE on how to download the same from (y)our portal.

Help-File-for-Mutual Fund-P&L-Download

* The portal / above help file is applicable only for our clients!

LTCG Tax On Equity: Demystifying Investors’ Concerns

Since the announcement of LTCG tax on Equity, the markets have not quite settled, and so are the investors. There are so many questions now – “Do I have to pay a tax on my Investment now?” “I thought I’ll get tax free Returns?” “Should I sell my investment, so that I don’t have to pay any tax?”, and the like. The minds are blocked by perceptions because every newspaper and TV channel has a different story to narrate, which is also the primary factor behind the hype.

What’s the New Law?

Long Term Capital Gains (Investment period > 1 year) of above Rs 1 Lakh from Equity stocks and Equity Mutual Funds, will now be taxed at 10%, which was fully exempt earlier. However, the gains made until 31st Jan 2018 will be grandfathered, meaning the capital gains made on the investment until 31st Jan 2018 will be exempt.

Tax Calculation: Amongst the most asked questions by clients at this point, is the tax calculation part. How will the grandfathering work? How much tax will be due on existing equity investments? How about new investments?, etc.

We have the following illustration, which shows the LTCG tax impact on an investment made in an Equity Mutual Fund on different dates, this will help you in solving a lot of queries:


Investment Value on 31st Jan 2018 (Grandfathering Date): Rs 5 Lakhs

Redemption Date: 1st May 2019; Value on Redemption Date: Rs 620,000


So, the above table shows that investors do not have to worry about the gains they have made historically, since all gains made prior to 31st Jan 2018 are tax free. As we see in the table above, in the first case, on a total gain of Rs 210,000 made over 2 years, the tax liability comes to just Rs 2,000. Also, long term capital gains made after the grandfathering date, upto Rs. 1 lakh, will be exempt.

Focus should be on the Goal: Further, it’s not just about tax, the investors must realize that they invested in Equity Mutual Funds with a goal in mind. If the goals are still far way, one need not worry about tax, rather they should stick to their investments. As such, in the long term – there is no other instrument that can match equity’s return despite the LTCG taxation @ 10% for gains over & above 1 lakh.

Source: NJ Wealth

New SIP investors feel the pain as equity fund returns disappoint!

SIP by SIP: That’s how the average Indian had a taste of equities in the past couple of years. But the steady road to riches, which involved monthly mutual fund purchases of a fixed amount, suddenly seems a bit rocky to many of them, who are beginning to look at mark to market losses as many stocks head south.

A report by NJ Wealth showed that SIP investors are losing in 78 of 137 equity mutual fund schemes, with the average loss at 1.5 per cent for two years. The loss is higher in mid/small-cap funds at 6 per cent, although in large-cap funds, they are gaining 1.5 per cent. Over longer tenures like three and five years, they are still in the black, by 5.21 per cent and 10.28 per cent, respectively.

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While most investors are not disturbed by the near-term volatility, distributors said that many new investors who came in for the first time seeing the returns of 2016 and 2017 are now feeling worried about these investments.

Investors have been pouring money into equity mutual funds through the SIP route. In December 2018, inflows through SIPs touched an all-time high of Rs 8,022 crore, a four-fold jump from Rs 1,916 crore in March 2015.

“Investors should continue with their SIPs and not worry as downturns help accumulate a higher number of units. This will help create wealth when the market cycle turns upward,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

Distributors point out that equity is a volatile asset class and would not give linear returns like a fixed deposit. They point that most SIPs are done by investors for the long term to meet their long-term goals such as children’s education, buying a house, or planning for their retirement.

“Equity returns are not consistent year on year. If you have done an SIP to meet a goal with a timeframe of five-seven years, you should not worry about low returns over a two-year period,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.

<The above article is an excerpt from Economic Times Newspaper>

Is it the time to “STOP” or “TOP UP” your SIP?

As the saying goes, “Rome was not built in a day”. Same way, there is no shortcut to Wealth Creation.
It reminds us of an investor Ramesh, who started his investment journey in April 2005 through his Financial advisor Mr. Ravi. Ramesh took his first step with a monthly SIP of 5,000 into Reliance Multi Cap Fund with a view to create wealth. By the end of 2006, he saw his money grow significantly to Rs. 1.60 lakhs over an investment of Rs. 1.05 lakhs.

Based on his recent experience, he decided to start his 2nd SIP of Rs. 5,000 in Reliance Multi Cap Fund in Jan 2007. His value of investments grew for the first 22 months but suddenly the markets corrected sharply as a fallout of Global financial crisis and his portfolio value declined to Rs. 2.30 lakhs over an investment of Rs. 3.25 lakhs. He got worried and was thinking of redeeming his investments as his portfolio value declined substantially. However, his investment advisor Mr. Ravi advised him to continue with his regular investments. He convinced him that SIP is a long-term wealth creation tool and each market correction is rather a good opportunity to further bring down the cost of investments by averaging through buying more units during such times. As guided by Mr. Ravi, Ramesh continued his SIPs without getting worried by the short-term volatility. This helped him grow his wealth systematically over a period of time.

In Jan 2011, when the markets started declining from their peak, Ramesh recalled Mr. Ravi’s advice and took this as another opportunity to start his 3rd SIP. He invested another Rs. 5,000 per month in Reliance Multi Cap Fund with a long-term perspective having learnt from his past experiences.


By Dec 2018, Ramesh’s:

  • 1st SIP of Rs. 8.25 lakhs grew over 3 times to Rs. 25.93 lakhs.
  • 2nd SIP of Rs. 7.20 lakhs grew over 2.5 times to Rs. 18.83 lakhs.
  • 3rd SIP of Rs. 4.80 lakhs grew over 1.7 times to Rs. 8.50 lakhs.


Mr. Ravi’s advice thus helped Ramesh to cumulatively earn a CAGR of over 15% p.a. through his three SIPs and see his corpus grow to Rs. 53 Lakhs.
Mr. Ravi now sincerely advises all his investors to start a fresh SIP at the current juncture and ride on the wealth creation journey. Accordingly, Ramesh has started his 4th SIP and is delighted to know that now he can also get a free life insurance of upto Rs. 50 lakhs through his new SIP investments in Reliance Multi Cap Fund..
The above example clearly illustrates how the benefits of SIPs like Averaging, Discipline etc. help in long term wealth creation through equities.
Let us look at it from another angle when markets are correct. It is like buying an product say a QLED TV etc. which we like but cannot afford it, as the prices are high. What if the said product is now available at a Discount? What would be our reaction in such a scenario? We would love to buy right! Similarly, SIPs enable an investor to participate in market across cycles and benefit from Cost Averaging i.e. ‘Buying more units at lower prices and less units at higher prices’.
It is in times of market volatility that one needs to proactively remove the investment apprehensions and continue with the Wealth Creation Journey through a disciplined and systematic investment approach. Investors may benefit over the long term given India’s long-term growth story remains intact.

 Excerpt from Reliance Mutual Fund e-letter; Past performance is not an indicator for future returns. Mutual fund investments are subject to market risks – please read the offer document before investing. 


Falling Markets, Ailing Mutual Funds: What Should You Do?

The Indian Equity markets saw one of it’s worst nightmares over the past few weeks. In the first week of October alone, the Sensex slipped more than 2,500 points. Overall, the Sensex has shed around 5,000 points since it’s all time high of around 39,000 towards the end of August. For the previous few months, Mutual Funds were showing early signs of the storm, owing to ailing mid caps and almost half of the Sensex and Nifty composition were in Red. However, some sectors like IT, and few banking and conglomerates stocks were holding the flag high. But with the recent fall in these stocks, the indices experienced massive jolts.

Markets are volatile because of various macro and micro factors, there is a lot happening around, global oil prices are increasing, US trade war sanctions, depleting Indian Rupee, the recent ICICI loan controversy, IL&FS’ potential loan default, etc.

If you look at the excerpts from the experts, you’ll come across diverse opinions, some are of the view that the markets may correct further due to the above factors and poor economic indicators, others opine an advancement, they are seeing at the positive growth estimates for the economy.

So, looking at the uncertain market scenario, falling NAV’s, varying notions, what should be your plan of action?

Ideally in the current situation, you should Do Nothing.

Volatility is inherent in the markets, Equity, by nature doesn’t grow in a straight line, there will be peaks and there will be bottoms, prompted by various factors, like the ones cited above are behind the current bottom. You cannot control it, so if it is not in your hands, let equity only exhibit the show.

Secondly, equities although are volatile, but if you look at the long term performance graph of the Sensex or the Nifty, the growth of the underlying companies and the economy takes over the peaks and the valleys, concurrently registering superior overall returns.

This is because the temporary factors don’t determine the growth of Equities, these factors can influence the prices for the time being, but over the long term, the indexes are actually a slave of the underlying companies potential. If the companies grow, the indexes will grow. The Sensex Value on 30th Sep 1998, was 3,102.29, and exactly after two decades, the Sensex closed at 36,227.14 on 28th Sep 2018, translating into a CAGR growth of more than 13%. And that was about the Sensex, the return generated by most Equity Mutual Funds in India, is much more.

The best you can do in such a scenario is, Ignore, you don’t even have to look at your Portfolio’s value, the turbulence will subside and eventually the markets will stabilize, leaving your investments growing over the long term. Consider you have invested in a PPF, the lock-in of the PPF investment is 15 years. Do you keep checking the value of your PPF whenever there is a hike or cut in the bank rates. No you don’t do that, rather you wait patiently for 15 years before you get the corpus credited into your account. The same logic applies to your Mutual Fund investments too. Be patient, give them time to demonstrate their potential, and let them fulfill your goals, the reason why you invested in them.

To conclude, amidst the current shaky situation, do what you have always been doing.

For your short term goals: Stick to liquid funds and short term debt funds

For your long term goals:

> Continue your Equity investments.

> Don’t stop your SIPs. One of the core factors behind the superior returns generation in the SIP mode of investing is through Rupee Cost Averaging, which means at high NAV you get less units and lower NAVs will fetch you more units of the scheme. So, it’s because of these volatile times, when the NAVs are low, you get more units in the SIP mode, which can give a boost to the overall returns over the long term.

So, let the cramps in your stomach rest, don’t pay heed to investment recommendations from finance gurus on TV channels or from people around you. Trust your financial advisor, stick to your financial plan and keep moving towards your goals.

  • Source: NJ Publication