Every single PMS or Mutual Fund manager keeps talking about how great their PMS investment returns are. That is great for them because that is their business. But how do you as an investor understand whether their returns are good?

Look at this example from cricket:

In 5 innings:

Batsman A: has scores of 50, 50, 50, 50, 50

Total: 250 runs

Average: 50

Batsman B: Scores of 0, 0, 0, 0, 250

Total: 250 runs

Average: 50

Even a lay observer of cricket will know that Batsman A is a far better player than Batsman B because he is delivering consistent returns even though his total and average are identical to that of Batsman B. Similarly, it is visibly clear that Batsman B is delivering a lot more pain for the 250 runs that he has scored.

One can easily apply the same logic to PMS Fund returns. There is a simple PMS return calculator to help you understand your Gain to Pain Ratio.

Let us take the example of 2 PMS funds

Fund A: Has monthly returns (%) of 5%, 8%, 5%, -6%, 8%

Total Returns: 20%

Total of "Pain Months": 6%

Gain to Pain for Fund A: 20÷6=3.33

Fund B: Has returns of 2%,-2%, 15%, -8%, 13%

Total Returns: 20%

Total of "Pain Months": 10

Gain to Pain for Fund B: 20÷10=2

Now you see exactly how easy to calculate the Gain to Pain Ratio is!

The higher the Gain/ Pain Ratio, the better that Fund Manager is because the returns are coming with lower pain, or drawdowns.

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You can get monthly investment performance data for every single Portfolio Management Service easily. Sitting in the comfort of your living room, you can easily calculate this intuitive and amazingly insightful ratio for various types of PMS investments.

Therefore, do not look at total returns only. Apply this simple ratio to give you insight into how much pain that portfolio manager is making you endure, in order to get to the gains.

Investment portfolio management becomes more systematic and clear with the Gain to Pain Ratio.

As you can see, a particular batsman can deliver a high series total just as a fund manager can deliver a high return over a period, but when it comes down to your hard-earned money, what is important is to look for a fund manager that delivers high returns but with low pain.

After all, you cannot take chances with the fund manager who is batting like batsman B, can you?!

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