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Real return

Also called: inflation-adjusted return, real rate of return

The return on an investment after allowing for inflation, which shows how much more you can actually buy.

Real return = (1 + nominal return) ÷ (1 + inflation) − 1. A quick approximation is the nominal return minus inflation.

A return that looks healthy in rupees can be small, or even negative, once rising prices are taken into account. Long-term goals are best planned in real terms.

Example

Earning 7% a year while inflation is 6% gives a real return of about 0.9% a year.

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