Where is Your Portfolio Headed?

Kripananda Chidambaram, 08 Mar 2012

What's happening?

With Indian equity markets on a high these days, relationship managers are using the opportunity to present a rosy picture of investments to their clients. After all, all they had to show clients in the last two years were losses. Some of them either didn't show face to clients in this period, or hid the losses behind complex 'returns' calculations that even Einstein probably couldn't have deciphered.

Even today, though returns are likely to look far healthier, the scope for 'creativity' remains. A demat account or trading statement never tells you what you have really made or lost at a portfolio level. Insurance companies with unit linked plans are notorious for never giving total premiums and current value in one place. If they did so, the damage caused by their unbelievably high charges would get exposed. They cleverly compare current value with invested amount, not with premium collected (invested amount is much lower than premium due to charges; but what matters to you is the premium!).

What does it mean for me?

Such rampant sleight of hand means that you should look at account statements much more closely to ensure you aren't taken for a ride:

  • How have dividend reinvestments been accounted in your fund statement? If they have been added to cost of purchase, the results would be inaccurate
  • Does your insurance statement compare premiums paid, with current value? Any other comparison (such as with amount actually invested in the fund) is highly misleading you have bought and sold several shares, a demat statement is meaningless. Shares already sold will not appear at all, nor will losses or gains from such shares
  • Does the statement give an annual return number? If not, you need to get a fix of this. A 12% return over five years is extremely low; the same over one year is perfectly respectable
  • For your overall portfolio, it is naive to leave returns measurement to your policy statement or relationship manager. They neither have your full data, nor can their calculations be relied on. You need to calculate returns yourself. Thankfully, there are some easy ways to arrive at a good approximation, as given below.


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