Monte Carlo Simulation

IMPORTANT: The projections or other information generated by this Monte Carlo simulation regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.

The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. All use is subject to terms of service.

Investing involves risk, including possible loss of principal. Past performance is not a guarantee of future results.

Asset allocation and diversification strategies do not guarantee a profit or protect against a loss.

Hypothetical returns do not reflect trading costs, transaction fees, commissions, or actual taxes due on investment returns.

The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.

Refer to the related documentation sections for more details on terms and definitions, methodology, and data sources.

Monte Carlo Simulation: A mathematical technique used to provide a range of possible outcomes and to approximate the probability of certain outcomes by running multiple trial runs, called simulations, using random variables. The simulation results are displayed by percentile, a 5th percentile result means that 5% of the simulated portfolios did worse and 95% of simulated portfolios did better for the given return or risk metric. At the median point (50th percentile), half of the simulated portfolios did better and half did worse.

Total Return: The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.

Compound Annualized Growth Rate (CAGR): The annualized geometric mean return of the portfolio. It is calculated from the portfolio start and end balance and is thus impacted by any cashflows.

Time-Weighted Rate of Return (TWRR): A measure of the compound rate of growth in a portfolio. This is calculated from the holding period returns (e.g. monthly returns), and TWRR will thus not be impacted by cashflows. If there are no external cashflows, TWRR will equal CAGR.

Money-Weighted Rate of Return (MWRR): The internal rate of return (IRR) taking into account cashflows. This is the discount rate at which the present value of cash inflows equals the present value of cash outflows.

Real vs Nominal Returns: Real return and balance are inflation adjusted values and show the growth of the purchasing power of the portfolio. Nominal return and balance show the portfolio gains without accounting for inflation.

Standard Deviation (Stdev): Used to measure the dispersion of returns around the mean and is often used as a measure of risk. A higher standard deviation implies greater the dispersion of data points around the mean.

Risk-Free Returns: Calculated based on Indian Government Securities (G-Sec) rates or RBI repo rate, as applicable for the Indian market context.

Inflation: Calculated based on Indian Consumer Price Index (CPI) or Wholesale Price Index (WPI) as applicable.

Correlation: Measures to what degree the returns of the two assets move in relation to each other. Correlation coefficient is a numerical value between -1 and +1. If one variable goes up by a certain amount, the correlation coefficient indicates which way the other variable moves and by how much. Asset correlations are calculated based on monthly returns.

Drawdown: Refers to the decline in value of a single investment or an investment portfolio from a relative peak value to a relative trough. A maximum drawdown (Max Drawdown) is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. Drawdown statistics are calculated from simulated monthly returns.

Risk Measures: All risk measures for the portfolio and portfolio assets are calculated based on monthly returns.

Simulation Count: The results are based on simulating 10,000 portfolio return paths (or as configured).

Probability of Success: Based on the number of simulations the portfolio survives with a positive end balance.

Safe Withdrawal Rate: The percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money (dollar amount withdrawal).

Perpetual Withdrawal Rate: The percentage of portfolio balance that can be withdrawn at the end of each year while retaining the inflation adjusted portfolio balance (percentage withdrawal).

Rebalancing: The results assume annual rebalancing of portfolio assets (or as configured).

Cashflows: Contributions and withdrawals are done at the end of each specified time period.

Sharpe and Sortino Ratios: Calculated against the historical average risk-free rate applicable to the Indian market context.