NISM XA

BY RISHABH GUPTA
Life cycle analysis of investor

Gifting Beginner
Phase Phase

Accumula
Spending
tion
Phase
Phase

Consolida
tion
Phase
2
Forecasting risk and return
of various asset classes

 Integration of Information
 Listing Investment Opportunities
 Forecasting Returns
 Assessing Deviations in Returns
 Relationship between Risk and Return

3
 Benchmarking the client’s portfolio

Importance of
Multiple or
Benchmark Correct Regular Review
Hybrid
Selection Benchmark of Benchmarks
Benchmarks
Selection

 By aligning the portfolio's benchmark with the appropriate market indices or benchmarks and
periodically reviewing their relevance, investment managers can effectively evaluate the
performance of the portfolio and make informed investment decisions.

4
Asset allocation decision

Diversification Investor Profile Risk Preferences

Tax Considerations Liquidity Needs

Risk-Return Analysis

5
Portfolio Construction Principles

Selecting Equity Sector and

Investment
Industry
Portfolios Objectives
Allocation

Selecting Debt Risk Profile Risk Profile

Portfolios

Selecting Hybrid Asset Allocation Diversification

Portfolios

6
Strategic versus Tactical Asset Allocation

Strategic Asset Allocation (SAA) Tactical Asset Allocation (TAA)

o Long-term decision o Short-term decision

o Target policy portfolio o Market timing
o Investor characteristics o Flexibility
o Rebalancing o Risk management

7
 PORTFOLIO PERFORMANCE
MEASUREMENT AND EVALUATION

8
Parameters to define performance – risk and
return

Different measures of Risk include : Different measures of Return include :

o Standard Deviation o Total Return

o Value at Risk (VaR) o Annualized Return
o Drawdown o Risk-Adjusted Return

9
 Rate of return measures

Time Weighted Geometric Mean

Holding period Rate of Return v/s Return v/s Gross v/s Net
Return Money Weighted Arithmetic Mean Return
Rate of Return Return

 holding period return tells you how much your investment has gained or lost
over the time you held it.
 The formula for calculating holding period return is:
Holding Period Return = (Ending Value - Beginning Value + Income) /
Beginning Value

10
 Time Weighted Geometric Mean
Holding period Rate of Return v/s Return v/s Gross v/s Net
Return Money Weighted Arithmetic Mean Return
Rate of Return Return

Key features of TWRR Key features of MWRR

• Equal weighting • Reflects investor behaviour

• Ignores cash flows • Weighted by cash flows
• Reflects investment manager's skill • Affected by investor timing

11
 Time Weighted Geometric Mean
Holding period Rate of Return v/s Return v/s Gross v/s Net
Return Money Weighted Arithmetic Mean Return
Rate of Return Return

• Key features of GMR • Key features of AMR

• The Geometric Mean Return calculates the
average compounded rate of return over a
specific time period.
• The formula for calculating GMR is:
GMR = [(1 + R1) * (1 + R2) * ... * (1 + Rn)]^(1/n) - 1
where R1, R2, ..., Rn are the individual returns for
each period.
• The Arithmetic Mean Return calculates the
average simple rate of return over a specific time
period.
• The formula for calculating AMR is:
AMR = (R1 + R2 + ... + Rn) / n
where R1, R2, ..., Rn are the individual returns for
each period, and n is the number of periods.
12
 Time Weighted Geometric Mean
Holding period Rate of Return v/s Return v/s Gross v/s Net
Return Money Weighted Arithmetic Mean Return
Rate of Return Return

• Key features of Gross Return • Key features of Net Return

• Pre-expense measure • Post-expense measure

• Represents investment performance • Reflects investor experience
• Useful for benchmarking • Measures actual performance

13
THANK YOU!!!

14