Your PMS return and your return are two different numbers
A portfolio manager's factsheet shows how the strategy did. Your own report has to show how your money did. SEBI has required both since April 2023, and for the same strategy they can differ by several percentage points a year.
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Open a PMS factsheet and you see one return for the strategy. Open your own quarterly report from the same portfolio manager and you should see a different one. Both are correct. They answer different questions.
SEBI's circular of 16 December 2022, in force since 1 April 2023, sets out which number goes where.
The two numbers
Time-weighted return (TWRR) measures the strategy. It links the return of each period and ignores how much money was in the portfolio at the time. Clause 2.9 of the circular says a portfolio manager must use TWRR, with the benchmark's trailing return beside it, whenever it advertises or publishes a strategy's performance.
XIRR measures you. It is the yearly rate at which every amount you put in and took out, each on its own date, grows to what you hold today. Excel calculates it with its XIRR function. Clause 2.10 says your report must show your XIRR for each strategy you hold.
One strategy, three investors
Take a strategy that returns 30% in one year and loses 10% in the other. Whichever year comes first, ₹100 becomes ₹117 over the two years, so its TWRR is 8.2% a year. Three investors each put in ₹1 crore in total:
| Investor | Order of the two years | How the ₹1 crore went in | Value after two years | XIRR |
|---|---|---|---|---|
| A | Either | All at the start | ₹1.17 crore | 8.2% a year |
| B | Up 30%, then down 10% | ₹50 lakh at the start, ₹50 lakh after year one | ₹1.035 crore | 2.3% a year |
| C | Down 10%, then up 30% | ₹50 lakh at the start, ₹50 lakh after year one | ₹1.235 crore | 14.9% a year |
The strategy's TWRR is 8.2% in every case. Investor B added half the money just before the fall, and Investor C just before the rise. The figures are an illustration, not any real strategy's returns.
What your PMS report has to show
Under clause 2.10, the report a portfolio manager sends you must include:
- your XIRR for each strategy you hold
- the lowest, highest and median XIRR across all of the manager's investors in that strategy
- the strategy's TWRR and the benchmark's trailing return, shown separately
- a note that your return may differ from other investors' because of when money went in and out, and because of differences in what your portfolio holds
The circular also bars managers from quoting model portfolio returns or the returns of hand-picked investors.
If your report shows only one return, ask the manager which one it is.
Mutual funds work the same way
A fund's factsheet return comes from its NAV, which moves with the fund's investments and costs, not with money coming in or going out. That makes it time-weighted, like a PMS strategy's TWRR. If you invested through SIPs, top-ups and partial withdrawals, your own return is your XIRR, and it can sit well above or below the factsheet figure.
To work it out you need every purchase and sale. A summary CAS from CAMS and KFintech shows only values. A Detailed CAS, requested for a period starting before your first investment, lists every transaction.
How Reva shows it
Reva reads a Detailed CAS and works out XIRR by the same method as Excel, for each fund and for the portfolio. It shows the figure only when two things hold:
- the statement's transactions account for every unit you hold, so no early purchase is missing
- the money has been invested for at least a year
If transactions are missing, Reva shows "—" rather than a figure. Money held for less than a year gets a plain return marked "abs.", because an annual rate over a few months can mislead.
Questions
- What is the difference between TWRR and XIRR?
- TWRR measures a strategy and ignores when money went in or out. XIRR measures an investor's own return, counting each amount on the date it moved.
- Which return must a PMS show me?
- Since 1 April 2023, SEBI's circular requires your report to show your XIRR for each strategy, the lowest, highest and median XIRR across the strategy's investors, and the strategy's TWRR with the benchmark's return.
- Why is my PMS return different from the factsheet?
- The factsheet shows the strategy's time-weighted return. Your return depends on when you added or withdrew money, so it can be higher or lower.
- Is a mutual fund's factsheet return my return?
- No. It comes from the NAV and is time-weighted. If you invested through SIPs or at different times, your XIRR can differ.
- How do I find my mutual fund XIRR?
- Request a Detailed CAS from CAMS covering the period from before your first investment, then use Excel's XIRR function on every purchase and sale, or add the statement to Reva.
Sources
- SEBI, Performance Benchmarking and Reporting of Performance by Portfolio Managers (16 December 2022)
- Microsoft, XIRR function
- CAMS, Consolidated Account Statement request
Compound is analysis, not investment advice. Reva Money is not a SEBI-registered investment adviser.
