Performance and reporting
In this chapter: XIRR, time-weighted vs money-weighted returns · Standard reporting templates
Investors need to know how their portfolio is performing. Time-Weighted Return (TWR) measures the manager's performance, neutral to client cash flows. Money-Weighted Return (XIRR) measures the client's actual experience, accounting for the timing of cash flows. Both are reported. TWR is right for evaluating fund managers; XIRR is right for evaluating client outcomes.
XIRR formula uses Excel/Sheets: =XIRR(cashflows, dates). Negative numbers for investments (outflows from the client perspective), positives for redemptions and final value. TWR is computed by chaining sub-period returns (each period between cash flows) and removing the cash-flow effect — most CRMs do this automatically. Reporting: monthly statements showing holdings, NAV, gains, fees; quarterly reviews showing allocation drift, IPS adherence, performance vs benchmark; annual review with comprehensive plan revision. SEBI IA Regulations require record-keeping for 5+ years.
A nuance: the difference between TWR and XIRR widens when clients add money during drawdowns or redeem during peaks. A client who SIP'd through 2008 and 2020 will have higher XIRR than the fund's TWR — they bought low. A client who chased performance (added in 2007 peak) will have lower XIRR than TWR. RIAs should report both numbers and explain the gap; this is genuinely educational for clients on the value of disciplined investing.