Real Return Calculator

## What is the Real Return Calculator? The Real Return Calculator reveals your actual purchasing power gain after accounting for inflation. If your FD returns 7% p.a. but inflation is 5%, your real return is only about 2% — your money grows nominally but in terms of what you can actually buy, it grows very little. ## Formula Used Real Return (%) = ((1 + Nominal Return) / (1 + Inflation Rate)) - 1 x 100 Approximate formula (for small rates): Real Return approximately Nominal Return - Inflation Rate Examples: - FD at 7%, Inflation 5%: Real return = 1.9% - Equity at 15%, Inflation 5%: Real return = 9.5% - PPF at 7.1%, Inflation 5%: Real return = 2.0% ## Worked Example Nominal return: 12%, Inflation: 5%, Investment: Rs 10 lakh, Period: 10 years Real return = ((1.12 / 1.05) - 1) x 100 = 6.67% Nominal value = Rs 10 lakh x (1.12)^10 = Rs 31,06,000 Real value = Rs 10 lakh x (1.0667)^10 = Rs 19,10,000 In today purchasing power, your Rs 31 lakh is worth only Rs 19 lakh — inflation consumed Rs 12 lakh of your gains. ## Frequently Asked Questions 1. Why is real return more important than nominal return? Nominal returns tell you how much your money grows in numbers; real returns tell you how much purchasing power you gain. If you earn 12% on equity but inflation is 10%, your real return is only about 1.8%. 2. What is a good real return target for Indian investors? A realistic real return target for Indian investors: 3 to 5% from a conservative portfolio (FD/debt), 6 to 8% from a balanced portfolio (60% equity, 40% debt), and 8 to 10% from an aggressive equity portfolio. 3. How does inflation affect debt mutual fund returns? Debt fund returns are significantly eroded by inflation. A debt fund delivering 7% when inflation is 5% gives only 2% real return. However, some debt instruments (inflation-indexed bonds) offer returns directly linked to inflation. 4. Is 8% return realistic for equity investments in India? Over 10+ year periods, Indian equity (Nifty 50) has delivered 10 to 14% annualised returns. From 2000 to 2024, Nifty returned approximately 15% CAGR. However, returns are not linear — there are years of -30% (2008, 2020) and years of +50% (2021). 5. What is the relationship between nominal rate, real rate, and inflation? Fisher Equation: (1 + Nominal Rate) = (1 + Real Rate) x (1 + Inflation Rate). For small values, this approximates to: Nominal Rate approximately Real Rate + Inflation Rate.