Investor Education: Understanding XIRR for Calculating Investment Returns

Path to Profit is an investor education & awareness programme that gives us an opportunity to interact with those who wish to learn more about investing. Given below are 3 questions that we fielded at a recently conducted event. We will keep releasing answers to such questions in subsequent mailers, so stay posted.

What is XIRR?

XIRR is the short form of Extended Internal Rate of Return and is used to find the return from investments done at different time periods. XIRR is nothing but an aggregation of multiple CAGRs (Compound Annual Growth Rate). If you make multiple investments in a fund, you can use the XIRR formula to calculate your overall CAGR for all those investments taken together.

Let's understand it with the help of an example. Let's say you make investments of Rs 1,000 per month in a fund for a period of 12 months, which grow to Rs 50,000 in 5 years. What's your overall return on these 12 investment installments? To get the answer, you need to calculate the CAGR for 60 months on the first installment, for 59 months on the second installment, for 58 months on the third one and so on and so forth. What XIRR does is that it aggregates all these CAGRs to give you the overall CAGR for all cash flows taken together. In our example, that comes out to be 10%.

Do companies like Satyam still exist?

Back in 2009 there was a confession that shook the markets. Ramalinga Raju Chairman of Satyam Computer Services confessed that the company's accounts had been falsified. The multi-crore scam was a jolt to the Satyam stock-holders. Later on Satyam was acquired by Tech Mahindra.

Quantum Long Term Equity Fund never invested and will never invest in such kind of companies. It's a philosophy of our fund house to give risk adjusted returns to our investors. At Quantum one of the criteria to pick a stock is also looking at the management of the company. Our main aim is to invest in high quality companies with sound management and right valuations.

Quantum's research and investment team employs the following process to create and manage your fund's portfolio.

= 25 - 40 stocks

Portfolio of stocks with broad exposure to various sectors. Reflecting three broad themes: domestic consumption, exports and infrastructure

= 100 stocks Regular meeting to review ideas and approve value stocks for the database.

> 200 stocks Analysts study stocks in their sector in India with global comparisons wherever necessary. The universe is generally S&P BSE 200 with flexibility to include new issues. Research includes visit notes, financial models and investment thesis, supplemented with broker research

With a strong investment process we aim to invest in companies with strong pedigree and shun crooked companies.

Can emergency money be held in a multi-asset fund?

The Quantum Multi-Asset Fund is an ideal fund for investors who wish to diversify their portfolio by investing in one fund. The Quantum Multi-Asset Fund proportionately allocates the sum invested in equity, debt and gold. Therefore as the fund has an equity element to it, exposing your emergency money to equity is not advisable. However, it is a suitable fund for investors who wish to have exposure to equities but do not wish to take the risk of being completely exposed to equities. One may never know when an emergency might strike, hence it is important to park money in instruments where it can be easily accessible at a short notice, and your principle amount is not at risk. It is important to look for an investment where the focus is on liquidity, safety of funds and a reasonable cost. Therefore we believe that the Quantum Liquid Fund, is a fund where the principle is at lesser risk as compared to the Multi Asset Fund and you also get the redemption proceeds faster.

Name of the Scheme & Primary Benchmark	This product is suitable for investors who are seeking*	Risk-o-meter of Scheme
Quantum Multi Asset Fund of Funds (An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund)	• Long term capital appreciation and current income • Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity , debt / money market instruments and gold	Investors understand that their principal will be at Moderately High Risk<
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.	Investors understand that their principal will be at Moderate Risk
Quantum Equity Fund of Funds An Open Ended Fund of Funds scheme Investing in Open Ended Diversified Equity Schemes of Mutual Funds	• Long term capital appreciation • Investments in portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI whose underlying investments are in equity and equity related securities of diversified companies	Investors understand that their principal will be at Very High Risk

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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