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Correspondent

23 August 2024 at 4:29:04 pm

Trust Reset

As the recent protests over the NEET paper leak showed, India’s examination system has reached a point where incremental repairs are no longer enough. The appointment of a high-powered task force on examination reforms, headed by technology pioneer Nandan Nilekani, is therefore not merely an administrative response to the NEET-UG paper leak crisis but a concrete attempt to rebuild confidence in one of the country’s most important public institutions. Examinations are gateways to opportunity,...

Trust Reset

As the recent protests over the NEET paper leak showed, India’s examination system has reached a point where incremental repairs are no longer enough. The appointment of a high-powered task force on examination reforms, headed by technology pioneer Nandan Nilekani, is therefore not merely an administrative response to the NEET-UG paper leak crisis but a concrete attempt to rebuild confidence in one of the country’s most important public institutions. Examinations are gateways to opportunity, social mobility and professional ambition. For millions of students across the country, a competitive examination represents years of sacrifice by families and the possibility of a better future. When question papers leak repeatedly, evaluation systems fail or allegations of manipulation emerge, the resulting damage strikes at the idea of fairness itself. The crisis surrounding NEET-UG exposed uncomfortable vulnerabilities in the country’s examination infrastructure. The resignation of Education Minister Dharmendra Pradhan and the subsequent appointment of Pralhad Joshi with additional charge of the ministry underlined the political seriousness of the issue. But political accountability alone cannot fix a structural problem. That is why the composition of the new task force is a move on the right direction. It brings together expertise from technology, space research, intelligence, education administration and logistics. Nilekani’s appointment is particularly significant. The former Infosys chief executive and architect of Aadhaar has experience in building large-scale digital public infrastructure involving hundreds of millions of citizens. The Aadhaar project itself was born out of a similar challenge: how to create a reliable identity system in a country where leakages and duplication weakened welfare delivery. India’s examination system now requires the same kind of thinking. The committee’s mandate to examine the entire examination lifecycle - from question paper creation and distribution to candidate verification, evaluation and results - is the right approach. The problem lies in multiple weak points where human intervention, poor security protocols and outdated processes can create opportunities for malpractice. Technology will inevitably be central to the solution. Artificial intelligence can help detect unusual patterns, blockchain-based verification can strengthen record security and better data systems can improve transparency. But a secure examination system requires independent oversight, professional management, clear accountability and swift punishment for wrongdoing. India’s National Testing Agency was created to bring efficiency and standardisation to public examinations. Its credibility must now be restored through reforms that are visible and trusted by students. The Nilekani task force has been given the difficult job of repairing that trust. The government has chosen a committee led by people with experience of managing complex national systems. It is a sensible first step. The real test will now be whether its recommendations translate into action.

Absolute Returns v/s XIRR

When investors evaluate any investment, the first number they usually think of is the “profit”. What extra have we earned? Naturally, this feels exciting. But the important question is: does this number truly reflect how well your money has worked for you?


This is where investors must understand the difference between absolute returns and XIRR. This difference is important across asset classes - whether it is a stocks portfolio, mutual funds portfolio, insurance product, LIC plan, real estate, or any other investment product.


Absolute Returns

Absolute return is the simplest (hence, misleading) way of measuring profit. It only tells you how much your investment has grown compared to the amount invested.


For example, if you bought a property for ₹1 crore and its value became ₹2 crore, your absolute return is 100%. You invested ₹1 crore and made a profit of ₹1 crore.


But this number does not tell the full story. The more important question is: how much time did it take?


If the same property doubled in five years, it would be excellent. But if it doubled over ten years, the annual return is much lower. In fact, ₹1 crore becoming ₹2 crore over ten years roughly translates to around 7% annualised return. Suddenly, the same 100% absolute return does not look as impressive.


XIRR Importance

XIRR stands for Extended Internal Rate of Return. It measures the actual annualised return of your investment, especially when money is invested or withdrawn at different points of time.


In stocks, XIRR helps measure multiple buy and sell transactions. In mutual funds, it helps measure SIPs, lump sum investments, switches, and redemptions. In insurance and LIC plans, it helps understand the real return after considering premiums paid over the years and the maturity value. In real estate, it helps compare the final value with the purchase price, holding period, and multiple cash flows.


This happens very often in real life, across multiple asset classes - multiple entries and exits of money. In such cases, absolute return can become misleading because it ignores timing.


XIRR considers three important things: how much you invested, when you invested, and what the current value is. It gives a more realistic picture of how efficiently your money has grown.


Real Purpose

The real purpose is to beat inflation, grow net worth, create wealth, and achieve financial goals.


If inflation is around 6% to 7%, your investments should ideally generate returns above that. If we also consider lifestyle inflation, the required return may be even higher. Education, healthcare, housing, travel, and daily expenses are all becoming costlier over time.


Therefore, do not overestimate returns by looking only at absolute numbers. Absolute returns may make you feel good, but XIRR tells you the truth.


For your wealth creation journey, XIRR is one of the most important numbers to track. It tells you whether your money is truly working hard, whether your portfolio is beating inflation, and whether your financial plan is on the right track.


(The author is Chartered Accountant and CFA (USA). Financial advisor. Views personal. He could be reached on 9833133605)

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