Have you ever wondered why your unit trust managers sometimes report award-winning fund performance figures for investments that you own in your portfolio and yet your own actual returns fall short of those numbers? Some explanation might help you to understand the difference.
If you had invested a lump sum at the beginning of the year and did not add or redeem your investment, your return would be the fund’s return minus the service charge you paid. That’s simple and straightforward.
John invested RM120,000 on 1 January 20XX. At the end of the year, the market value of his investment was RM144,000. Your investment return is 20% as reported by the Fund Managers.
However, in practice, you do not tend to sink in your entire investment on the 1st January, but rather you invest different amount at ad hoc or regular intervals throughout the year. In such situations, computing the rate of return becomes far more complicated Thus if you have invested the same RM120,000 on a monthly basis of RM10,000 per month, and the profit generated are the same as above of RM144,000, you will realise the true rate of return cannot be the same as the single lump sum invested at the start of the year as the unit price tend to flactuate over a period of time.
The MWRR is a measure of the client’s portfolio returns. It is calculated by finding the rate of return that will set the present values of all cash flows and terminal values equal to the value of the initial investment. In other words, it takes into consideration all investments and redemptions in calculating the rate of return of a unit trust portfolio.
MWRR makes it easy for you to compare your unit trust portfolio’s returns against other investment
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