Why your return isn't the headline.
The number a manager advertises and the number your rupees actually earned are measured differently — and the gap is where most investors get fooled.
Two returns, one portfolio.
A manager reports performance using TWRR — a time-weighted figure that strips out the timing and size of investor cash flows, so it measures skill on a like-for-like basis. What you personally earned is XIRR — a money-weighted figure that captures exactly when you invested, topped up or withdrew. Both are correct; they simply answer different questions. Add fees, tax, your benchmark choice and a little entry-date luck, and you can see why two investors in the same strategy walk away a few percentage points apart. This page makes you return-literate.
One portfolio, two honest returns.
A manager reports TWRR — a time-weighted figure that strips out the timing and size of investor cash flows, so it measures skill on a like-for-like basis. What you personally earned is XIRR, a money-weighted figure that captures exactly when you invested, topped up or withdrew.
Both are correct; they simply answer different questions. Add fees, tax and a little entry-date luck, and two investors in the same strategy can walk away a few percentage points apart.
TWRR measures the manager. XIRR measures you.
TWRR, the time-weighted rate of return, breaks the period into sub-periods around every cash flow, computes each sub-period's return and links them together. Because it neutralises when money entered or left, it isolates the manager's decisions — which is exactly why SEBI and APMI mandate it for PMS disclosure and why it is the only fair way to compare two managers.
XIRR, the money-weighted rate of return, does the opposite: it answers "what did my actual rupees earn, given exactly when I invested, added or withdrew?" It rewards or penalises your timing and the size of every flow. It is the honest measure of your personal experience, and it is always verifiable from your own account statements.
Here is the reconciling fact: when there are no cash flows in a period, TWRR and XIRR are identical. Every gap between them is created by a flow — your top-up, your withdrawal, or capital phasing in. Neither number is lying; they are answering different questions.
TWRR — "how good is the manager?"
Ignores your flows. Use it to compare strategies against each other and against the benchmark.
XIRR — "what did I earn?"
Includes every flow and its date. Use it to judge your own account, never to rank managers.
Four honest reasons your number is lower.
None of these mean the manager underperformed. They are the legitimate mechanics that separate an advertised TWRR from your personal XIRR — and once you can name them, the gap stops feeling like a trick.
Entry & exit timing
Buy near a peak or add just before a drawdown and your XIRR sinks below the reported TWRR — even though the strategy itself never changed. When you invest matters as much as what you invest in.
Cash drag while deploying
Capital often phases into the market over weeks. Money sitting in cash earns little while the portfolio ramps up, pulling your early return below the manager’s headline figure.
Top-ups & withdrawals
Every addition or redemption changes how much capital is exposed during good and bad stretches. A big top-up right before a strong run flatters your XIRR; one before a fall hurts it.
Net-of-fees & tax
Headlines may be gross. Your account wears management fees, any profit-share, brokerage, GST and statutory charges — and because shares sit in your demat, every sale is a taxable event in your name.
From the brochure to your statement.
An illustration of how one reported figure becomes four different numbers by the time it reaches a single investor who added capital mid-year. The strategy is identical throughout — only the lens changes.
| The number | What it reflects | Figure |
|---|---|---|
| Gross TWRR | Manager skill, before fees — what the brochure shows | +18.0% |
| Net-of-fees TWRR | After management fee, profit-share, GST and charges | +15.4% |
| Benchmark TRI | The comparable index, dividends included | +12.0% |
| True alpha | Net return above the benchmark — the real value added | +3.4% |
| Your XIRR | You added capital after a strong first half — timing cost you | +13.1% |
The brochure says 18%. After fees the strategy returned 15.4%, beating its index by a genuine 3.4 points — yet this particular investor earned 13.1% because their top-up landed after the easy gains. Every figure is true at once. Illustrative numbers, for explanation only.
Five lenses that separate signal from sales pitch.
The right benchmark — and what alpha really is
Every strategy is tagged to a category and the manager picks a benchmark from a prescribed shortlist — at most three per strategy. Insist it is genuinely comparable, and a Total Return Index (TRI) that includes dividends, not a flattering price index. Alpha is the return earned above that benchmark, measured net of all fees. Beat a soft index by picking the wrong yardstick and the "alpha" is an illusion.
Client dispersion — same strategy, different outcomes
Managers report at the investment-approach level, with TWRR computed across all client portfolios. But within one strategy, individual clients can sit a few percentage points apart — driven by different start dates, staggered deployment, small customisations and the timing of fees. Your assets are held in your own name with an independent custodian, so your personal XIRR is always yours to verify.
CAGR vs absolute — don't be dazzled by a short run
Returns under a year are quoted as absolute; a year or longer are annualised as CAGR. A "40% return" over four months is not a 40% annual rate — and annualising a lucky quarter to a yearly figure is one of the oldest tricks in the brochure. Read the period before you read the number.
Drawdown & recovery — the ride, not just the destination
The maximum drawdown is the deepest peak-to-trough fall a strategy has suffered, and recovery time is how long it took to climb back. A high CAGR that came with a brutal 45% drawdown is a different product from a steadier one — because most investors who panic-sell do so at the bottom, turning a paper loss into a permanent one.
Rolling returns beat cherry-picked dates
A single point-to-point return can be flattered or wrecked by its start date — inception-date luck. Rolling returns average the outcome across every possible entry day, so they show what a typical investor could expect rather than the one window that looks best on a slide. Always ask for three- and five-year, since-inception, and the worst rolling twelve-month figure.
Judge the manager on TWRR. Judge yourself on XIRR.
Use the right number for the right question, always net of fees, always against an honest benchmark, and always over rolling windows rather than a single lucky date. Do that and no brochure can fool you.
Judge the manager and yourself on the right number.
Insist on a genuinely comparable Total Return Index, and read alpha net of all fees. Mind the period — a 40% run over four months is not a 40% annual rate — and weigh the drawdown and recovery, not just the destination.
Use TWRR to compare managers and XIRR to judge your own account, always over rolling windows rather than one lucky date. Do that and no brochure can fool you.
Returns, answered.
Which number should I trust — TWRR or XIRR?
Both, for different jobs. TWRR is the fair way to compare one manager against another and against the benchmark, because it removes your cash-flow timing. XIRR is the true measure of what your own rupees earned. Use TWRR to choose; use XIRR to keep score of your own account.
Why is my XIRR lower than the advertised return?
Usually a mix of four things: when you entered, cash sitting idle while capital deployed, the timing of your top-ups or withdrawals, and the fact that your figure is net of fees and tax while the headline may be gross. None of it means the strategy failed — it means you are looking at your personal experience rather than the manager's skill curve.
Two friends, same PMS — why are our returns different?
Client dispersion. Within one strategy, different start dates, staggered deployment, minor customisation and fee timing can leave two investors a few percentage points apart, even though the manager reports a single aggregate TWRR. Because your shares are held in your own name, your statement always shows your true, verifiable XIRR.
What actually counts as alpha?
Alpha is the return a strategy earns above a genuinely comparable benchmark, measured net of all fees. Beating a soft price index, or one from the wrong category, is not alpha — it is a yardstick problem. Insist on a Total Return Index in the same category before crediting any manager with skill.
Why prefer rolling returns over a single CAGR?
A single point-to-point CAGR depends heavily on its start and end dates — pick a lucky bottom and any strategy looks brilliant. Rolling returns average the result across every possible entry day, revealing consistency rather than one flattering window. They are the honest way to see what a typical investor could expect.
Keep reading.
What a PMS really costs
The full fee stack, GST and the tax that lands in your own name.
Read guideCommon mistakes
Chasing point-to-point returns and other traps that quietly cost investors.
Read guideWhat is a PMS?
Direct ownership of shares in your own demat — and why that shapes everything.
Read guideCompare returns the honest way.
Educational content only — not tax or investment advice. Figures shown are illustrative and current to FY 2025-26; verify your own position with a qualified adviser before acting. Investments are subject to market risks.