It has been over a year since Vivekam launched NIFTY FLOATER product. The methodology of NIFTY FLOATER product was elaborately explained in one of the pages in this blog and can be found by clicking here. Month wise performance of this product was done after December 2014 and the findings were also presented in another article in the blog and can be accessed by clicking here. Number of clients using this product have increased over time and reached a number of 34 by March 2015. Like any good practice, Vivekam deems it fit to analyse the past performance of this product for those clients who used it for a period of six months or above.
There were 25 clients who have been using NIFTY FLOATER product for a period exceeding six months as on 31 March 2015. To make it simple, income earned by the clients every month has been aggregated and compared with aggregate investment for the same period to arrive at the annual return for them. Being a product brought in as a substitute or alternative to fixed income avenues, this product has served its purpose quite well.
The following table lists the statistics of 25 clients, whose names and codes were partially blurred to keep them confidential from public scrutiny. When we calculate the average return earned by this group of clients, it worked out to be 27.3% per annum which is way more than 6.5% offered by liquid funds or a maximum of 14 to 15% offered by debt funds. When interest rates are changed by RBI, the NAV of debt mutual funds will change significantly and could negatively impact the wealth of investors. However, with NIFTY FLOATER, there are no such risks either to the principal or to the likely returns. Instead, in our back testing analysis, we realised that 3 out of 24 months produce negative returns. Yet the total return of a given client over a period of one year has never been negative.
One can notice that one of these clients had managed to earn a return of 66.27% per annum in the last 13 months out of this product. The second-best return of 58.31% was earned by another client who used the product for the past 10 months. The returns of these two clients had been higher than others because they both had faith in the system and opted to leverage their investments by five times. Rest of the clients were a bit conservative and used a leverage of 3 times. Lowest return was at 16.5% per annum for a client who used the product for the past seven months. With guaranteed liquidity of 100% for investment and profit earned once every month, no wonder NIFTY FLOATER has won the hearts of a few enlightened HNIs.
Being a product introduced as an alternative to fixed income investments, a post-tax return of 7% is assumed as hurdle rate. Since income from NIFTY FLOATER product is taxable, a pre-tax return of 10% per annum is considered as a hurdle rate for clients using this product. Hence, when clients earn a return that is more than an annualised rate of 10% in a given month, a performance fee of 20% of such excess becomes payable to Vivekam. In addition to this performance fees, irrespective of the returns earned by the client, a flat fee of 1% per year (charged on monthly basis) is also payable.
When the returns of the clients are around 24% per annum, they will be paying 2.8% as performance fees (being 20% of (24% -10%)) and another 1% as flat fees. That means clients will be left with a return of 20.2% (after subtracting 2.8% and 1%)pre-tax as against the accepted hurdle rate of 10% per annum. Investors desirous of using this product or to learn more details on this product may write to firstname.lastname@example.org