## Saturday, January 12, 2013

### Monitoring Investment Performance

DEAR INVESTOR JUAN
PERSONAL FINANCE 101

Dear Investor Juan,

Just want to say that your blog is the answer to my prayers hehe investment terms na madaling maintindihan. I'm planning to invest in UITF equity for my daughter's college education. I have a question lang regarding the ROI. Meron ba syang closing balance for the day or talagang based sa NAVPU kung kelan ka naginvest? For ex, 5 years ung 10k mo sa equity, say at 100 napvu. After 5 years 120 napvu on the date of selling ko. Does that mean in 5 years kumita lang ng 2000 ung 10k? Please enlighten me. Thank you.

Here's another question: initial investment ko is 10k then add ako ng add ng 10k every month (making my total investment 120k for one year, how do you compute that? base sa basic accounting ko

month 1: 10,000 at 100 Buying NAVpU, 110 Selling NAVpU = 11,000

month 2: 11,000(from month 1)+10,000 (addl inv) = 21,000 at 110 buying NAVpU, 120 selling = 22909.09

month 3: 22909.09(from month 2)+10,000 (addl inv) = 32,909.09 at 120 buying NAVpU, 130 selling = 35651.52

I'm checking kasi paano computation para pag nakipag-usap ako alam ko yung sinasabi nya at alam ko yun sasabihin ko.

Thank you so much!

Marissa

Dear Marissa,

You're right, if you invest in a UITF, your returns will solely be determined by the NAVPUs at the time you buy and at the moment you sell.

Your computations are correct, but allow me to try to restate them in a (hopefully) simpler way. Let's just assume that you won't sell at the end of every month and just compute for the value of your investment on paper. We can also compute for the percentage return at the end of every month using the formula

Month 0 (beginning of Month 1), NAVPU = 100

Invest 10,000 pesos or 100 units

Total "Money Out" = 10,000
Total Investment Value = 10,000

Month 1 (end of month), NAVPU = 110

Total "Money Out" = 10,000
Total Investment Value = 100 units * 110 = 11,000

Percentage return after one month = (11,000 - 10,000)/10,000 = 10%

Invest additional 10,000 pesos or 10,000/110 = 90.91 units
Total units after additional investment = 100 + 90.91 = 190.91 units

Month 2 (end of month), NAVPU = 120

Total "Money Out" = 20,000
Total Investment Value = 190.91 units * 120 = 22,909.20

Percentage return after two months = (22,909.20 - 20,000)/20,000 = 14.55%

Invest additional 10,000 pesos or 10,000/120 = 83.33 units
Total units after additional investment = 190.91 units + 83.33 = 274.24 units

Month 3 (end of month), NAVPU = 130

Total "Money Out" = 30,000
Total Investment Value = 274.24 units * 130 = 35,651.20

Percentage return after three months = (35,651.20 - 30,000)/30,000 = 18.84%

The computations for percentage return shown here is simple and straightforward, but does not take the time value of money into account. In a follow up post, I will discuss alternative ways of computing for investment returns that takes this into consideration.