Hello
Investor,
Alert – Simple Algebra
required for understanding
It
has been said that “Change is constant in life.” It is evident in our
lifecycle. Life starts as an infant, to a school going kid, than to a college
going teenager, to a family person and lastly to phase of retirement.
All
phases comes with a change which we accept as human being.
When
it comes to hard earned money, we question the rule of change. One must
understand the importance of outperformance and underperformance. Let me
explain the simple criteria considering current market situation.
• Imagine
a situation of index value at 100 before Covid situation.
• Due
to Covid, Index falls from 100 to 80 (-20%)
• At
the same time, a performing scheme is outperforming index and falls only -15%
• While
an underperforming scheme is underperforming index and falls -25%
• In
an hypothetical situation, Index recovers from 80 to 100 which is 25% growth.
• As
the performing scheme fell less to 85 will become 106.
• And
the underperforming scheme fell more to 75 will become 94.
Case
here to prove is loss can be recovered by patience but underperformance cannot
be recovered.
Mutual fund investors must review and reshuffle
portfolios at different time horizons.
Nishit Siddharth Shah
