CAGR: CAGR (compounded annual growth rate) is a useful measure of growth or performance of a portfolio. Every year returns generated by a portfolio is different. Let's say if a portfolio is live for 3 years and returns generated by the portfolio are 5%, 15% & -7%, respectively in the first, second and third year. Then we calculate CAGR as a return number that would give the same terminal investment value at the end of three years, as we get when the portfolio gains by 5% & 15% in the first two years and drops by 7% in the third year. The CAGR in this case would be 3.94%. This means that you will always end up with the same investment value at the end of the third year, if your portfolio gains by 3.94% every year or 5%, 15% and -7%, respectively in the first, second and third year.

In simple words, it indicates the annual return generated by the smallcase from the date of launch. In case the smallcase is live for less than a year, CAGR represents the absolute return generated by the smallcase from the date of launch. Only live data is considered to calculate the CAGR number.

PS - CAGR calculation methodology got updated from 23rd Mar’21 on all smallcase Platforms. Please read this blog for understanding the changes in detail.

Volatility: Changing stock prices on a daily basis results in fluctuating investment value of your portfolio. If the daily change in the investment value of a portfolio is too drastic, it means prices of stocks in the portfolio are changing very rapidly. Such portfolios have High Volatility. Every smallcase is categorized into one of the three volatility buckets - High Volatility, Medium Volatility and Low Volatility. This is done by comparing smallcase volatility vs broader market volatility. Investing in High Volatility smallcases means that change in your investment values can be very sudden and drastic. Following table represents the logic followed to categorize smallcases into various volatility buckets.

Volatility Ratio (VR)Label
VR >= 1.3High Volatility
0.8 <= VR < 1.3Medium Volatility
VR < 0.8Low Volatility

Volatility Ratio = Average annual rolling standard deviation of the smallcase divided by the average annual rolling standard deviation of the Nifty 50 Index, since launch of the smallcase.

Minimum Investment Amount: It is the minimum amount that needs to be spent on buying the smallcase in order to ensure that stocks are bought at weights that are closest to the suggested weighing scheme.

Buying/selling of fractional shares are not allowed on Indian exchanges. Thus, in order to ensure that investors end up buying at least one share of the highest priced stock, while maintaining prescribed weighting scheme, she needs to invest a minimum amount. For example, let's assume with a share price of Rs 1500, stock A is the highest priced stock in a smallcase. If the weight of the stock A in the smallcase is 20%, then the minimum investment amount of the smallcase will be Rs 7500. If the investor invests Rs 7500, then he will be allocating Rs 1500(7500 * 20%) to stock A which will enable her to buy exactly 1 share of the highest priced stock. Any amount less than this will not allow her to buy 1 share of the stock A, while ensuring 20% exposure to stock A.

Weights and Weighting Methodology: Every smallcase has a prescribed weighting scheme decided by the creator of the smallcase. Weighting scheme decides how much of the invested money will be going into every stock of smallcase. If A stock has 15% weight in the smallcase and investor wishes to invest Rs 1000, then Rs 150 will go in stock A. If the price of the stock A is Rs 10, it means investor will buy 15 (150/10) shares of stock A.

Review: In order to ensure that smallcases remain true to their market theme/strategy and to make sure that stocks in a smallcase are the right picks for taking exposure to a particular theme/strategy at a specific point in time, smallcases are reviewed at regular intervals.

During review, a particular stock might be added / dropped or its weight in the basket might be increased / decreased compared to previous levels.

Segments: Stocks/ETFs belonging to a smallcase are categorized under different segments. For example, Affordable Housing smallcase has segments like Paints, Real Estate, Housing Finance etc consisting of smallcase constituents belonging to these segments.

Money Put In: It represents the total amount of money put into generating the total profit or loss. Suppose Rs.14,462.35 is the minimum investment amount of smallcase X and an investor spends the before mentioned amount on day 0 towards buying the smallcase. Hence on day 0 the money put in is the same as current investment which is Rs.14,462.35.

Suppose 30 days later the investor decides to invest Rs.20,000 more into the smallcase and hence the money put in and current investment increases proportionately to Rs. 34,462.35 (14,462.35 + 20,000).

On day 60 the investor receives a rebalance update. The rebalance requires the investor to buy Rs.5,000 worth of shares of company A and sell Rs.3,000 worth of shares of company B. Hence the net additional investment is Rs.2,000 (5000 - 3000). Now the money put in amount increases by the net additional investment amount to Rs.36,462.35. If the net additional investment had been negative then the money put in amount would have decreased.

Total Return: Total return is calculated as the sum of current returns, dividends and realized returns. This is the total return earned by investing in the smallcase.

Suppose Rs.14,462.35 is the minimum investment amount of smallcase X and an investor spends the before mentioned amount on day 0 towards buying the smallcase. 30 days later one of the stocks in the smallcase announces dividend of Rs.100 per share. If 10 shares of the stock is held as part of the smallcase investment the total dividend amount received by the investor is Rs.1000 (100 * 10). On this day the market value of the smallcase is Rs.20,000. Hence the total returns on that day would be Rs.6,537.65 (20,000 – 14,462.35 + 1,000).

Current Return: Current return is the difference between the market value of the smallcase on a specific date and the initial amount invested in the smallcase. Market value is the sum of current value of all the shares of each of the stock in the smallcase. Current value of each stock is calculated as number of shares of the stock multiplied by current share price of the stock. Based on the above example the current return is Rs.5,537.65 (20,000 – 14,462.35 ).

Realized Return: Realized return is the profit or loss earned by partially or completely exiting the smallcase. Assume Rs.10,000 was invested in the smallcase on the first day of the month. Suppose on 15th of the month, the market value of the smallcase increased to Rs.15,000. Suppose the investor decides to book profit of Rs.2,500 and ends up selling proportionate number of shares. This amount is the realized return which is the amount of money that the investor receives in her bank account.

ETF: ETF stands for exchange traded fund. It is a basket of stocks that tracks the performance of a stock/bond/commodity index. For example the SBI ETF Nifty has Nifty 50 index as the underlying, whereas Axis Gold ETF has gold as the underlying. The basket is traded as a marketable security, just like a common stock, on an exchange. As units of ETF’s are bought and sold their prices change on a regular basis.

Asset Allocation: Asset allocation is the practice of allocating assets of a portfolio among different categories like stocks, bonds, cash, real estate etc. Each asset class has a different level of expected return and risk. For example equities have a high level of risk and hence their expected return is high. Bonds have fixed return and hence their risk level tends to be low. These asset classes also have a different correlation to one another.Hence by allocating assets across different categories the investor can attempt to earn high returns at lower risk, regardless of market conditions.