This is my portfolio vs Sensex, Nifty Next 50: Want to Check yours?

When the personal financial audit 2017 was published, I had discussed how my equity retirement portfolio has grown with time and also mentioned that a tool with which you can do the same is on the works. It is now nearly complete. In this post, I use the tool and compare my equity mutual fund portfolio (retirement) with the Sensex, NIfty Next 50 and analyze how stressful the journey was. You can do the same too 🙂

In the post on Index Investing: advantages and disadvantages of being a passive investor I had talked about the importance of lowering risk in real time – which active funds do one way or another – then using a volatile fund such as the Nifty Next 50. My portfolio highlights this aspect again. Of course, many readers do not agree as they bent on one thing – “finally” if the index outperforms, it is not a good idea to index invest?

All I can say in response is, ‘good luck and godspeed’. I prefer to a portfolio that falls lower than the index because I do not think that the “market will eventually get back up” – not when I need the money. As R Balakrishnan put it so eloquently:

equity will give you returns, but not when you need it

Therefore I recognise the importance of lowering risk in real-time. There is more to investing than returns and costs. So now on to the graphs.

Update: The tool used to create the graphs for this post is now available. Scroll down for download link.

Since inception portfolio vs Sensex

With the tool, you can simulate index comparisons. That is, choose an index and make the same transactions as you have done in your portfolio with it. If you buy Rs. 1000 on Jan 2nd 2011 in HDFC Top 200, you do the same with Sensex or Nifty Next 50. If you redeem, you redeem from the index too. So here is how my portfolio compares with Sensex

So should I be happy? No, I should be comparing my portfolio with Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!

Since inception portfolio vs NIfty Next 50

Waaa! I am such a poor investor. If I made the purchase and redemptions (exact amounts, exact dates) on the NIfty Next 50, it would have given me better returns

Not so fast.

A few years ago, I had discussed Mutual Fund Analysis With the Ulcer Index. Before it was clear that ulcers were caused by a bacterium, stress was believed to the cause of ulcers. So the Ulcer index is a measure of investor stress.

The Ulcer index is designed in such a way that it penalizes downside (fall from the maximum) much more than other ratios. It was first published by Peter Martin and Byron McCann in their book The Investors Guide to Fidelity Funds (1989). Peter Martin describes the index in his page: tangotoolsThe out of print book in pdf form can be found here.

Higher the ulcer index, lower the downside protection and higher the investor stress

You can use the freefincal Mutual Fund Risk vs Return analyzer to calculate the Ulcer index of any fund with its benchmark. Here will compare the ulcer index of my portfolio with that of an investment in the NIfty Next 50.

Please note that the ulcer index and portfolio rolling return analysis are not (yet) part of the portfolio analysis tool. You can however use it compare your portfolio with a variety of indices.

Ulcer Index of portfolio vs NIfty Next 50: 8 years

The blue line is the ulcer index of the portfolio (left axis). The burgundy line is the ulcer index of NIfty Next 50 (left axis). The light green is the normalized portfolio value (right axis). The violet is the normalized Nifty Next 50 investment value (right axis).

Take a few seconds to understand this graphs as similars one will follow below.

The ulcer index of my portfolio is pretty much lower than that of NN50. So I was less stressed holding it. To me that is valuable. If you don’t care about it and assume in the end you will always get higher returns from the index, all I can is good luck.

Why is the portfolio outperforming the index now? Because results depend upon the interval chosen. It is like blind men touching the elephant.

Now you are going to see the same graph as above for different durations. The conclusions are the same.

Ulcer Index of portfolio vs NIfty Next 50: 7 years

Ulcer Index of portfolio vs NIfty Next 50: 6 years

Ulcer Index of portfolio vs NIfty Next 50: 5 years

Ulcer Index of portfolio vs NIfty Next 50: 4 years

Ulcer Index of portfolio vs NIfty Next 50: 3 years

Ulcer Index of portfolio vs NIfty Next 50: 2 years

Rolling return portfolio analysis vs Nifty Next 50

In the nearly 10 years that I have been investing in equity, there are 1648 5-year periods. These are plotted below for the portfolio and NN50.

So the portfolio has “only” beat the index by 51%. That is for those who assume “beating” the index only means “more returns”.

Downside protection of the portfolio vs NN50

Comparing the monthly returns over 5Y periods, we can calculate the downside protection of the portfolio. If it is less than 100%, then the portfolio has been better than the index in containing losses. If it is more than 100%, then the portfolio has lost more than the index.

Excuse me for thinking that the cost of active management has been quite worth it.

A sneak peek into the portfolio visualization

This is the main input screen of the tool. If things go to plan, I shall release it on Thursday. Still, a couple of things to be ironed out.

I would like to include stocks into this tool depending on your feedback.

Download: Mutual Fund Portfolio Growth Visualizer With Index Benchmarking

9 thoughts on “This is my portfolio vs Sensex, Nifty Next 50: Want to Check yours?

  1. Extremely well written one Pattu. The stress index is by far the most ignored one and this write up gives a good perspective.

    Most people make good returns on paper and cash out in a down turn, Having a low volatile portfolio will provide the guts to withstand bear cycles and the stress index is very important in the larger picture.

  2. Now a days it seems that you are popularizing index investing in blog, You are showing it in a good light, why the sudden change? You are investing in active funds,Request you to pease stick to that topics. Pleae keep in mind that there a huge community which follows your recommendation. Already we are getting in a bad shape with the TRI becoming mandatory by SEBI. Please dont popularize index funds, It will take away jobs from lacs of people in the mutual fund industry earning a honest income.

  3. Wow… Just wow.. Pattu does an honest comparison of Index Funds to actively managed funds. The goal of the website is informed DIY investing. If, armed with information, I think index funds are better, I will invest in index funds, even though all the jobs in mutual fund services are lost. Investment strategies are for the investors, not the other way around.

  4. This is reply to comment by Pradeep’s this point – “Please dont popularize index funds, It will take away jobs from lacs of people in the mutual fund industry earning a honest income.”
    If Index funds are not better the investor will not choose them and you will be happy. If they are better and you are not suggesting them then how can you say that is ‘honest’ income? Ideally they will paying you a fee and investing in suggested mutual funds themselves. So how does it affect you?

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