For those interested in knowing whether their management of equity is better or worse than the market (or Sensex or Nifty), one way to get an idea is to calculate the NAV of your portfolio periodically.

Here are two links that may help:

HOW IS PERFORMANCE MEASURED?

Calculating Performance

This topic was first raised here.

And Prudent Investor has given a couple of suggestions here.

Interesting idea. I'll try this from 1-Apr-2010 and update on my portfolio thread.

One question ... to determine the start NAV, for existing investments, the value considered for AUM should be the current market price and not the investment cost ... correct?

This is what I am doing pending course-corrections suggested by members.

Disclaimer: I don't have a background in commerce / accounts, so I will definitely be guilty of terminological inexactitudes


1. Strictly limited to my direct equity holdings. So, equity MF's, debt MF's, bank FD's, "other incomes", are all excluded.

2. The starting AUM is the total (in Rupees) of my equity holdings valued at yesterday's closing (31/03/2010) on the BSE plus the cash that is in my ledger with the broker after incorporating changes due to yesterday's buy/sell.

3. I divided this by 10 (ten) to issue units to myself.

4. I express the NAV to 3 decimal places. So, yesterday's NAV was Rs. 10.000 and today's is 10.111.

5. A few things peculiar which others may not may not agree with:

I calculate the holding of any script by subtracting the likely charges associated with selling; so if the closing price is Rs. 100 and I have a 100 shares, my holding is not Rs. 10,000 but Rs. 10,000 minus the 0.48% (brokerage, ST+EC, SD, EL, STT) and a flat Rs. 11 (DP charges assuming I remove all 100 shares in one day).

The implication of this is that my portfolio holding value is slightly understated.

I am valuing the unlisted Persistent IPO at cost (Rs. 310) for now.

Since the cash balance is my ledger balance, it reflects broker AMC and DP charges on a cash basis.

I intend to ignore dividend because tracking that will be a nightmare in the daytime. Doable, but a nightmare.

So this will be a second ground for portfolio undervaluation.

Comments / criticism / improvements /suggestions please!

I guess you're good to go with the AUM derived from the closing day's values from whenever you want to start. The initial cost is irrelevant in determining daily NAV.

My take on this :

I reduce the total portfolio value by the %age deducted in brokerage and other costs.

For ICICI Direct, one needs to divide the AUM by 1.00745.

For dividends, instead of tracking at per share level, we can treat it as cash addition, without new units, so that will boost the daily NAV.

Just as the AMC, DP Charges reflect as Cash deduction, the Dividends will reflect as Cash Addition.

I'm still confused and still not comfortable about how to treat dividend.

While it is true that the stock price (mostly) falls to reflect the dividend payout, and that this decrease should be compensated, the point is that the dividend actually goes to the bank account and not to the corpus (or AUM).

A painful (if not neurotic and possibly expensive) solution would be to "transfer" the equivalent amount back (from the bank account) on the ex-dividend date to the corpus (without actually receiving the dividend in the bank account) and without increasing the units.

Why not just measure your portfolio cost in "Nifty Units"?

Take an excel sheet.

Make 8 columns.

1. Stock name.
2. Number of shares.
3. Cost per share in rupees.
4. Total cost in rupees.
5. Cost of stock in "Nifty Units".
6. Number of "Nifty Units".
7. Market price per share in rupees.
8. Total market value.

If you buy 10 shares of Reliance for Rs 1000 each when Nifty is at 5000, your total Nifty cost will be 2 units.

(For the same Rs 10000, you could have bought 2 units of Nifty)

At any given point of time, you can compare the market value of your portfolio (or individual stocks) with the value of the Nifty units and know whether your investments have outperformed the Nifty or not.

Dividends can be neglected as they would be relatively small and both Nifty and individual stocks go ex-dividend from time to time.

Cash holdings of an individual investor keep varying. Including the cash holdings would complicate things.

The approach that I have suggested will tell the investor if his stock picks are outperforming the index or not.

If over a longer period, the investor finds that his stock picking skills aren't beating the index, he should shift to mutual funds.

One can also compare against another indices.

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In my case the dividend goes to the same bank account which holds the cash for buying/selling shares. So with the delivery of dividend the cash component goes up and the same gets reflected in the NAV.

If one doesn't include cash component than leave aside intelligent stock picking, one can easily beat the index/MF by simply investing in all the good ipo's in a year.

Problem with MF managers is that even if they know market is heated they don't take a call of moving to cash. (Maybe they are not allowed to as per the MF mandate) None of the MF schemes moved their corpus to cash during or before the 2008 peak (except the smart management in my company, who moved the whole superannuation corpus from equity to debt in Dec2007, hats off to them, now they have asked us to manage our individual superannuation fund portfolio ). If AMC wants the investor to make a call by redeeming units, then what the heck investor is paying 2.5%+stock-shuffle charges for ? Won't he better off buying a low cost index fund ?

Ok, I am not in just to compare the performance of stocks picked with that of a Mutual Fund.
What I am trying to do is replicate the MF model, keep a corpus in an account, invest a part in equity, rest would be lying in a debt or will earn the same returns of savings bank account.

And review later whether it is worth the effort.

Well, I think I'm making too much of a big deal about where the dividend goes. I will add it to the "cash" and be done with it .

Since many of my shares are of the low/no growth but high dividend yield variety, the dividend better not be ignored.

Alchemist, I really didn't figure out the Nifty unit's advantage over the conventional NAV way. Maybe I need more time. .

Dear Alchemist,

Could you please explain point 5 above, i.e., Cost of stock in "Nifty Units".

One other thing is, how to include partial sale of a stock? e.g. considering the Reliance example above, if 5 shares are sold (at Rs. 1000/share for simplicity), then since number of Nifty units reduce to 1, wouldn't the performance be dragged down.

I know I'm terribly confused here .

Thanks

Well, my NAV was 100.00 on March 31 and today it is 99.68!

Latest NAV Value, Any updation?