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Why real returns matter to your portfolio? All you need to know.

It is important to calculate the real returns but is equally important to hold investment for the long term to get a better real return.<br><br>

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Why real returns matter to your portfolio? All you need to know.

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  1. Ever wonder if getting higher returns on investments than the return you get on money you keep in your savings account is enough to secure your future. Finance experts say investing in different asset classes is the best way to grow your money with time, but this concept has a second layer. The second layer is inflation, and if you’re an Indian investor, you need to keep in check the inflation rate in India. The second layer becomes crucial because, with the rise in your investment nominal rate of return, we need to see that the inflation rate in India is also rising. We need to make sure that the return on our investments is growing higher than the inflation rate in India. So, we should focus more on the real rate of return than the nominal rate of return; let’s get these concepts clearer. What is the real rate of return? The real rate of return is the actual return you get after adjusting for inflation and taxes. The nominal rate of return does not include taxes or inflation. The real rate of return = Nominal interest rate (%) — Inflation rate (%). For example, If your investments give you a return of 15% and the inflation rate in India is 5%, then your actual return on your investment will be 10%. According to the real rate of return, the actual purchasing power of a given amount of money is determined over time. As prices increase, your purchasing power decreases. This is because you will be paying a much higher amount for any product you buy today at a low price. For the train ticket for which you are paying Rs 500 today, five years from now, you will be paying 1000 for the same train ticket. It is essential to keep the concept of real vs nominal returns in mind whenever you are investing your money. It is crucial to keep your investment up with inflation. During a period of high inflation, calculating the rate of return in real value rather than nominal value is more helpful in determining whether an investment was successful. So, it is crucial to calculate real return before selling or tracking your investment. For more Info Why real returns matter to your portfolio? All you need to know.

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