229) Why My Investment Returns Are Different From The Fund's Performance Report?
You have read and seen the Unit Trust Fund Performance Reports. You are impressed with the returns. However, when you check with your actual investment, the returns are different.
You may start to wonder why there are differences? Is the report accurate?
These are common questions from Unit Trust investors.
Here are possible reasons why there are differences.
1) Different Dates.
The Fund Performance Graph & Report are based on lump sum investment on the specific first and end dates.
For example, if you are reading the 2019 Quarter 1 report, the 3-year Total Return is based on the last 3 years performance up to the Report date. If the report is dated 29 Mar 2019, it may show the report of the fund performance from 30 Mar 2016 to 29 Mar 2019. There may be slightly different dates due to weekends are non business days.
Your investment dates may be different from those 2 dates. Even 1 day difference will have an impact on the total returns. The stock market may have experienced a change of 1% to 2% in a day.
2) Invest multiple times.
As the report is based on 1 lump sum, the fund performance report will be different from your actual fund's performance. As most investors do regular Unit Trust investments, the different times and periods will affect differently on the Total Returns.
3) Withdrawals and Reinvestments.
Your redemptions and investments have affected your funds performance differently. The different transactions on different dates will have different prices and units.
4) Switching between different funds.
Switching of funds involves selling out of one fund and buying into another fund. The investment values are calculated based on different funds.
5) Initial Service Charge
For unit trust investments, investors are charged an Initial Service Charge. If the fund is charging 5%, then your actual investment amount is the amount paid less the charges.
For example, you invested $10,000 into a fund with 5% Service Charge.
Actual Investment (or also known as Working Money)
= Amount Paid / (1 + Service Charge)
= 10,000/(1 + 0.05)
= 9,523.81
Only $9523,81 is used to invest.
Your fund future value is based on the actual investment amount.
What is the actual value if the fund grows 10% over the next 1 year?
The actual future value is:
FV = PV(1+i)^n
= 9,523.81 (1 + 10%)^1
= 9,523.81 (1.10)
= 10,476.19
It is not,
FV = 10,000 (1+10%)
= 11,000
The Initial Service Charge is only charged on the first day of the investment.
6) Distribution Payout
Paying out the distributions basically will also reduce the invested capital. When your investment value is reduced, the actual returns performance will also be lower. Distribution Reinvestment would not affect your investment performance.
There may be other reasons on the fund performance differences that is not listed here.
Please contact your Unit Trust Consultant for more details.
Links to other related articles:
143) Service Charge and Other Considerations in Unit Trust Investment.
https://highlevelrules.blogspot.com/2018/01/service-charge-and-other-considerations.html
106) Is Unit Trust Initial Service Charge really that HIGH?
https://highlevelrules.blogspot.com/2017/09/is-unit-trust-initial-service-charge.html
186) Does Unit Trust Fund Performance include Service Charge?
http://highlevelrules.blogspot.com/2018/07/does-fund-performance-include-service.html133) Benefits of Distribution in Unit Trusts
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