Portfolio Growth Benchmarking

When you invest money, two different factors influence its growth.

First is the asset performance. If you buy gold, this is simply the price of gold over time. If you buy a mutual fund, this is the NAV — how the value of one unit of the fund changes as the underlying assets move. This part is independent of you. It reflects the quality of the asset or, in the case of a fund, the decisions of the fund manager.

Second is timing of your investment. The same asset, with the same price curve, can produce very different outcomes depending on when you put money in, how much you add, and when you exit. This part is entirely about your decisions.

Mutual funds make this separation explicit. The NAV shows how the fund performed as a product. Your actual return depends on the NAV and your timing. By comparing both against a benchmark, you can see whether returns came from good asset performance, good timing, or a mix of both.

What’s less obvious is that you can do the same analysis for your own portfolio.

If you treat your portfolio as a “fund” you manage, you can construct a NAV-like growth curve for it. That lets you evaluate yourself in two roles at once:

• as a fund manager: how good is the underlying portfolio compared to a benchmark?
• as an investor: how good were your investment decisions into that portfolio?

When you look at both, interesting patterns emerge. You might see a strong portfolio with poor realized returns, decent returns from a weak portfolio due to lucky timing, or cases where both beat the benchmark.

In this article, we’ll look at the charts that make these distinctions visible — one that benchmarks portfolio quality, and another that benchmarks your actual returns. We’ll define the terms clearly, walk through examples, and finally show how FinBodhi helps you see these two layers separately.

The Problem Statement

For this article we will talk about individual investment vehicles as assets (same as asset account category in FinBodhi), and a collection of one or more assets as portfolio. The growth of your portfolio is a consequence of roughly two kinds of decisions:

1. Allocation: picking the assets and their weightage. The term allocation is often used for weightage of investments into categories (debt, equity etc)) in a portfolio. But for this article, we use it as a term for the selection of individual assets and their weightage in portfolio, over time.

2. Timing: when to put or take out money

We are simplifying things here. For one, many of us change the allocation when we invest, instead of keeping same weightage of the assets. But the simplification helps us understand the problem.

To evaluate if your investment is doing well or not, you have to look at how others are doing. You have to look at a benchmark. For your equity investments this could be an index fund. For your networth this could be inflation. E.g. whether your wealth as a whole is growing at least to beat inflation.

But first let's understand how timing and allocation are components of your return. And to do that, let's start with the simplest case: a portfolio with single asset.

Asset NAV Chart

Let's build up to understanding how we chart returns for an asset. We'll start with raw prices and work our way to a normalized view that makes comparison easier.

Price over time. For any asset, we start by looking at how its price changes. For gold this would be price of a unit of gold. For mutual fund, this would be NAV of the fund. Here's a simple chart: time on the X-axis, price on the Y-axis. This asset starts at ₹120 and ends at ₹180.

Buying and selling. Now imagine you buy and sell this asset. You buy when the price is ₹150 and sell when it's ₹185. The chart now shows your entry and exit points.

Calculating your gain. With buy and sell prices, we can calculate the gain. The formula is straightforward: subtract buy price from sell price, then divide by buy price to get the percentage gain.

Normalizing to NAV. But what if we want to compare different assets with different price ranges? A stock at ₹5000 and one at ₹50 are hard to compare visually. The solution is to normalize: pick a starting date, start everything at 1 and show growth as a multiple. Now 1.25 means "25% above starting point" regardless of the actual price. This is the normalized NAV (Net Asset Value) view — the same calculation, just expressed as multiples of the starting value. NAV's calculated in FinBodhi would be normalized. That is, within a chart all NAV lines would have same starting date, and their starting value would be 1. Notice how the gain calculation remains the same.

Charting Returns - Single Asset Portfolio

Now consider yourself in two different roles. One as a fund manager of your portfolio, and another as investor into your portfolio. And your portfolio is a constant return asset with return rate of 10%.

As a portfolio manager for the 1 asset portfolio, you don't have to do anything, just buy the asset with the inflow of money. In other words, the asset is 100% of the portfolio. So, your performance is same as the asset's performance. We can use the NAV chart from last section, to show the asset performance. Like we discussed before, NAV chart is normalized to start at 1.

The chart above shows the NAV growing steadily at 10% per year. Starting at 1.0, it reaches approximately 1.61x after 5 years (1.10^5 ≈ 1.61). This represents the portfolio manager's performance - pure allocation, no timing effects.

As an investor, you can plot the value of your investment in the portfolio. Let's say you invested ₹10,000 at start and ₹10,000 again at start of year 2. This shows the value of investment over time. But in this case of constant return, you don't gain much extra information out of it.

Cyclical

Now, let's consider an asset whose value has cyclical ups and downs every year, but overall grows with time. E.g. end of 1st quarter of the year the asset's value peaks, and end of 3rd quarter of the year, it dips. Here is the asset NAV chart for it:

To understand the effect of timing, we will chart your portfolio value (value of money you invested in the asset). Let's consider the two extremes — investing at the peak vs investing at the dip — and compare them with investing at the start:

The investment that started at dip, by 4th year could return as much as 19,000. Even at it's lowest return in 4th year, it's more than the return from investment make at peak. You see, you as a portfolio manager have the same performance (which is shown in the previous NAV chart). Your strategy in both cases is, 100% on this asset. But for you as an investor, the difference in portfolio returns in the two cases are your timing. In the worst/peak case, even though your timing was only off by half a cycle, you would have to wait much longer than that to match the returns of the dip investor.

The last chart, which shows the value of your investment, is called the Value Chart in FinBodhi. We showed few investor value lines in this chart (peak, dip and start), to explain why it matters. But in FinBodhi, only one portfolio is shown at a time, along with a benchmark. It doesn't make much sense to compare value chart of multiple portfolios. NAV can have multiple portfolios (we allow up to 4) compared in the same chart, because all of them can be normalized. Comparing NAV and Value chart, you gain insight into your decisions.

Portfolio and Benchmark

With multiple assets in a portfolio, understanding the difference becomes more complicated. But the essence of it is the same. Let's revisit the two roles you have. Fund manager and investor of your own portfolio. As a fund manager, you would decide on the assets and their weightage in your portfolio. And like we discussed in previous section, you would evaluate your performance with NAV Chart. As an investor, ideally you shouldn't be trying to time the market, unless you know what you are doing. But you could either way evaluate your performance based on your total return (which captures timing). This is the Value Chart we looked at previously.

And like we discussed before, to understand if the portfolio is doing better or not, you need a benchmark. E.g. for your net worth this could be inflation. For your equity investments, this could be market index fund, etc. For NAV, we just compare it with NAV chart of benchmark. For value chart, we place the same cashflows on the benchmark. Which means, there might be cases where cashflow on benchmark leads to negative value.

In FinBodhi you can add both these charts for a selection of your assets. Here's a quick reference for interpreting each chart type. This is the same documentation shown in the app's help buttons.

Other Ways to Measure

The NAV Chart and Value Chart we've discussed are one way to visualize the difference between allocation and timing performance. But they're built on well-established financial concepts.

Time Weighted Return (TWR) measures portfolio performance independent of cashflows — it answers "how well did the portfolio grow?" This is what the NAV Chart visualizes. TWR is the standard for evaluating fund managers because it isolates their decisions from investor behavior.

Money Weighted Return (MWR) measures your actual return including the timing and size of your cashflows — it answers "how well did my money grow?" This is what the Value Chart captures. XIRR (which we show at the end of each line in the charts) is a common MWR calculation that annualizes your return based on actual cashflows.

There are also other comparison methods we haven't covered here: rolling returns (comparing performance over moving time windows) or point-to-point returns with a fixed end date. These offer different perspectives and we may support them in future.

Real Portfolio Examples

Here are some real portfolios that people have shared with us. These are the three cases I alluded to at the start. Note that the cashflows are not shown here, but XIRR includes the annualized return based on the cashflow.

High NAV, Low Return

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This one has strong NAV growth (good allocation decisions). E.g. the NAV line is higher than benchmark, throughout the time. But the investor's timing resulted in lower overall returns (5.3% xirr).

Low NAV, High Return

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This portfolio has weaker NAV growth compared to the benchmark, but the investor's timing decisions resulted in significantly better overall returns. If you see carefully, around 2023, the portfolio line show a much steeper incline than the benchmark.

High NAV, High Return

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This portfolio demonstrates strong performance on both fronts: good allocation decisions (NAV above benchmark) and good timing decisions (high returns). But again, that was not the case till 2024.

These examples illustrate the difference between allocation performance (NAV) and timing performance (actual returns). You can evaluate your cashflows with these charts to understand what's happening.

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Now that we have context, here are the details of what both the charts show. You can also access this from help button on the charts.

Portfolio Value Chart

The Portfolio Value chart shows your actual wealth in absolute currency terms over time, including all investments, gains, and withdrawals.

What It Shows

The chart displays:

• Portfolio line: Your total portfolio value at any point in time
• Benchmark line: What your money would be worth if invested in the benchmark instead

How the Benchmark Works

The benchmark line answers: "What if I had done the same transactions, at the same times, into the benchmark instead?"

Each of your actual cashflows (SIPs, lump sums, withdrawals) is simulated as if it went into the benchmark:

• When you invested ₹10,000, the benchmark "buys" ₹10,000 worth of the index
• When you withdrew ₹5,000, the benchmark "sells" ₹5,000 worth

Reading the Chart

• Y-axis: Portfolio value in your currency
• Cashflow dots (optional): Shows when money moved in or out
• XIRR/CAGR (optional): For portfolio line, you can toggle between XIRR (includes cashflows) and CAGR (basically where the line ends).

XIRR

XIRR if enabled, is your annualized return. This accounts for all the timing of your investments and tells you the equivalent fixed annual rate.

Mental Model

The Portfolio Value chart tells you your actual wealth story. When compared with NAV chart for same portfolio, you can understand if timing is helping or hurting the returns. If you enable XIRR, you can quickly glance to understand timing and allocation differences. XIRR is a Money Weighted Measure, while the NAV chart is Time Weighted Measure.

Portfolio NAV Chart

The NAV (Net Asset Value) chart shows your portfolio's normalized performance over time, making it easy to compare returns regardless of when or how much you invested.

How NAV Works

NAV tracks performance by converting all investments into "NAV units":

1. When you first invest, NAV starts at 1.0
2. Each subsequent investment buys units at the current NAV price
3. The NAV value reflects your portfolio's growth multiple

Example: If NAV shows 1.5x, your portfolio has grown 50% on a time-weighted basis.

Why Use NAV?

NAV is the standard way mutual funds report performance because it removes the effects of cashflows. As a fund manager, you don't control when the investor puts money in your fund.

Another big advantage of NAV is that it allows for comparisons across portfolios. Since it remove cashflow effects, NAV line basically answer the question of how 1 unit increase over time. This allows for comparing NAVs of different portfolios.

Reading the Chart

• Portfolio lines: Your actual normalized performance. You can add up to 4 portfolio lines
• Benchmark line: The selected index or fund for comparison
• Rate grid lines (optional): Reference lines showing constant annual return rates (e.g., 10%, 15%, 20%)
• Cashflow dots (optional): Shows when money moved in or out

XIRR Display

The percentage shown next to each line is the XIRR - your annualized return accounting for all cashflow timing.

Mental Model

NAV line is measuring your performance as a portfolio manager. It ignores timing of cashflows and gives an idea of how the asset choices and their weightage is performing. If your portfolio line is above the benchmark line, you've outperformed the benchmark.

Conclusion

The Benchmark page introduces two charts for you to measure your portfolio performance. Portfolio here is a collection of assets that you can filter/choose. You can look at the performance of the portfolio from a fund manager's perspective (NAV Chart), or from an investor's perspective (Value Chart), which includes timing effects and is your real return. You can compare both to understand your portfolio. You can build dashboard with multiple of these comparisons to keep track of different subsets of your overall portfolio.

Appendix

NAV Calculation

NAV (Net Asset Value) measures portfolio performance independent of cashflow timing. Here's how it works:

The Core Concept

Think of your portfolio as a mutual fund that you're both manager and investor of. The NAV represents the "price per unit" of this fund.

Step-by-step Calculation

1. Initial Investment: When you make your first investment, NAV starts at 1.0 (or 100, the scale doesn't matter)

   • You invest ₹10,000 → You own 10,000 NAV units at ₹1 each

2. Portfolio Value Changes: As your investments grow or shrink, NAV changes proportionally

   • Portfolio grows to ₹11,000 → NAV = 11,000 / 10,000 units = 1.1

3. New Cashflows: When you add money, you buy units at the current NAV

   • You invest another ₹5,000 when NAV = 1.1
   • You buy 5,000 / 1.1 = 4,545.45 new units
   • Total units = 10,000 + 4,545.45 = 14,545.45 units
   • Portfolio value = ₹16,000, NAV stays at 1.1

4. Ongoing Calculation:

   NAV = Total Portfolio Value / Total NAV Units

Why This Works

As we saw before when discussing single asset portfolio, adding or removing money doesn't change NAV - it only changes how many units you own. This isolates the portfolio's performance from your investment timing.

Event	Portfolio Value	NAV Units	NAV
Initial ₹10,000	₹10,000	10,000	1.00
Market grows 10%	₹11,000	10,000	1.10
Add ₹5,000	₹16,000	14,545	1.10
Market grows 10%	₹17,600	14,545	1.21

Notice how adding ₹5,000 didn't change the NAV - it only changed the number of units. The NAV of 1.21 at the end tells you the portfolio grew 21% from the start.

Multi-Asset Portfolios

For portfolios with multiple assets, the calculation is the same:

1. Sum the value of all assets to get total portfolio value
2. Divide by total NAV units

The NAV captures the combined effect of all your allocation decisions across all assets.

Mathematical Derivation

Let's prove that cashflows don't affect NAV. Define:

• $V(t)$ = portfolio value at time $t$
• $U(t)$ = total units at time $t$
• $N(t)$ = NAV at time $t$ = $\frac{V(t)}{U(t)}$

Initial state: We normalize $N(0) = 1$, so $U(0) = V(0)$.

When portfolio value changes (no cashflow): If value changes from $V$ to $V'$:

$$N' = \frac{V'}{U} = \frac{V'}{V} \cdot \frac{V}{U} = \frac{V'}{V} \cdot N$$

NAV changes proportionally to portfolio returns.

When cashflow $C$ arrives: New units purchased at current NAV:

$$\Delta U = \frac{C}{N}$$

New portfolio value and units:

$$V' = V + C, \quad U' = U + \Delta U = U + \frac{C}{N}$$

New NAV:

$$N' = \frac{V'}{U'} = \frac{V + C}{U + \frac{C}{N}}$$

Since $V = N \cdot U$:

$$N' = \frac{N \cdot U + C}{U + \frac{C}{N}} = \frac{N \cdot U + C}{\frac{N \cdot U + C}{N}} = N$$

Cashflows don't change NAV.

This proves NAV isolates portfolio performance from timing. If returns between cashflows are $r_1, r_2, \ldots, r_n$, then:

$$N_{\text{final}} = (1 + r_1)(1 + r_2) \cdots (1 + r_n)$$

This is exactly the Time-Weighted Return (TWR) formula—the geometric chain-linking of sub-period returns.