Page 1

HOW MUCH YOU REALLY GET Five questions you should ask to compute your actual returns from your investment.

1

3

Is this an annual return

Is it post-tax

The actual returns will come down after tax is deducted from the total corpus.

Advertised

100%

Return

10%

What this means 100% each year over 10 years on an investment of Rs1 lakh=

For individuals in 30% tax bracket

4

Rs10.2 crore

5

If the fund manager deducts 2% as cost every year, then your net return will be 9.76% per annum.

after 10 years

Annual return: 7%

Is it simple interest or compounded

Returns as per compound interest

For individuals in 10% tax bracket

Is it postinflation?

Ask, is it post-cost

Rs2 lakh

Return

For individuals in 20% tax bracket

If you account for increasing inflation each year, the actual returns will go down.

Return 10%

100% after 10 years on an investment of Rs1 lakh=

2

9%

Is it post-cost

after 10 years

OR

8%

7%

Return

Your real rate of return

Inflation

Return

10%

4%

6%

COMPOUND INTEREST: Interest is added back every year to the principal amount and both earn interest.

Rs1 lakh after 10 years will return Rs2.59 lakh on

10%

a 10% compounded return

1.00

1.10

1.21

1.33

1.46

1.61

1.77

1.95

2.14

2.36

1

2

3

4

5

6

7

8

9

10

10

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.59 End of

Year

Returns as per simple interest

SIMPLE INTEREST: When the interest earned is not added back to the principal each year.

(Return figures in Rs lakh)

Source: Mint research

http://www.livemint.com/articles/2010/03/29234109/CB2546A5-AEA8-46FA-9A76-A0068AC74A04ArtVPF  

http://www.livemint.com/articles/2010/03/29234109/CB2546A5-AEA8-46FA-9A76-A0068AC74A04ArtVPF.pdf

Read more
Read more
Similar to
Popular now
Just for you