What is time weighted rate of return?
ET CONTRIBUTORS|
Oct 30, 2017, 06.30 AM IST
1. TWRR is a method of computing the returns of a portfolio.
2. It eliminates the distorting effects created by inflow and outflow of money caused by interim investments and redemptions.
3. To compute TWRR for any period, calculate the returns for every sub-period before any contribution or withdrawal occur and then geometrically link these sub-period returns together to compute the return over the period.
4 . It is used to compare the returns of managed portfolios like mutual funds where there is no control on cash flows and to compare investment managers’ performance.
5. It requires daily portfolio valuations whenever any contribution or withdrawal occurs, hence not used to compute returns at individual level.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
2. It eliminates the distorting effects created by inflow and outflow of money caused by interim investments and redemptions.
3. To compute TWRR for any period, calculate the returns for every sub-period before any contribution or withdrawal occur and then geometrically link these sub-period returns together to compute the return over the period.
4 . It is used to compare the returns of managed portfolios like mutual funds where there is no control on cash flows and to compare investment managers’ performance.
5. It requires daily portfolio valuations whenever any contribution or withdrawal occurs, hence not used to compute returns at individual level.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
