When you check your mutual fund app, you often see two different return numbers. One is the fund reported return, and the other is your personal folio return. Understanding why these differ is crucial for accurate financial planning.
Fund Return vs Your Return
The mutual fund return is a standardized calculation. Your folio return is your personal internal rate of return (IRR) that accounts for every single transaction.
Your personal return is the only number that truly matters. The fund return is a benchmark; your folio return is your reality.
Why the Gap Exists
- Timing of Investments: Your average purchase price depends on when you started.
- Regular vs Lump Sum: SIP investors see different returns than lump-sum investors.
- Withdrawal Impact: Any partial withdrawal changes your cost basis.
How to Use This Knowledge
Do not panic if your folio return is lower. Use this to evaluate your strategy. The goal is to ensure your plan is on track to meet your goals.
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