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

1 Is this an annual return

4Is it post-cost 5

Advertised

What this means

Return 100%

Return 10%

100% each year over 10 years on an investment of

Rs1 lakh=

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

Annual return: 7%

Rs10.2 crore after 10 years

Rs2 lakh after 10 years

OR

2 Is it simple interest or compounded COMPOUND INTEREST: Interest is added back every year

to the principal amount and both earn interest.

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

Rs1 lakh after 10 years will return Rs2.59 lakh on a 10% compounded return

Year

Returns as per compound interest

Returns as per simple interest

1.00

1.00

1

1.10

1.10

2

1.21

1.20

3

1.33

1.30

4

1.46

1.40

5

1.61

1.50

6

1.77

1.60

7

1.95

1.70

8

2.14

1.80

9

2.36

1.90

10End of

2.59

2.00

10

Is it post-inflation?

3 Is it post-tax

Ask, is it post-cost

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

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

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

For individuals in 30% tax

bracket

For individuals in 20% tax

bracket

For individuals in 10% tax

bracket

Inflation

Your real rate of return

Return

10% 6% 4%

7%10% 8% 9%Return

Source: Mint research

(Return figures in Rs lakh)

Return 10%