Returns from your investments - How much is good?
Money Lessons
27th April 2018

“How much profits / returns will this investment give?” is a question similar to the “will your dog bite?” question.

It warrants a similar answer too.  You bet that is not very reassuring.

But let me rephrase this for you.

“What is fair to expect?” is probably what you really mean.

That…. is an amazing question.

Fair expectation from an investment is a good place to start evaluating your options.

When we consider ‘fair expectation’ that will answer three critical questions for you.


  • Is this going to be worthwhile? Should I really bother?


  • Why will this investment give this kind of return?


  • Does its past performance justify such an expectation?



Worthwhile or not?

Why invest money?

If your answer is – “so that I can use it in future” then the minimum your investment should return is inflation rate.

If your investments don’t give you more than inflation you may as well spend the money today and enjoy the good things of life. Why even bother putting it away?

A ‘fair return’ expectation is that which beats inflation.

INflation more than money

A big mistake you can do and something most advisers also do is wrongly estimate inflation. How much is inflation do you think?

If you say, 6% or 7% as the government says, you should consider this. The government assumes you spend 50% of your income on food. Tell me, do you do that? 50% on food. Really?


Understand that any government data is based on and considering the average citizen. An average Indian citizen earns Rs.93,293/- a year. That is less than Rs.8000/- a month. And so he obviously spend 50% on food and his inflation is at 7%.

Just look at yourself and on things you spend on.

A careful study on how expenses of affluent Indians like you go up year on year and on things you spend on, shows this figure to be about 12%. The cost of school education, transportation, holidays, club memberships etc. And this is not even including lifestyle upgrades.

12% is how much your investments should return, if investing has to be worthwhile for you.

If you aren’t getting at least 12%, remember you are destroying wealth, wasting time and effort.

Now, let’s go searching for investment options that will give you those returns!

 Why will an investment give that kind of returns?

There are two reasons why any investment will gain value

  1. If it is has been used to create some value – like a business that sells solutions for common life problems. Your customers are willing to pay for your product or services and you get to take your solutions to more and more clients and grow and make profits. These businesses can be scaled up, diversified with related products, spun off into many companies, franchised out into different geographical locations, licensed for use by people you don’t even have to see or meet. The opportunities are many. Investment into such businesses are the most potent and valuable ever.
  2. Or if it has been made scarce - like oil, gold, other commodities, homes. Even tickets for your favourite rock star’s live show. This is just demand and supply not matching and prices will go up as lock as the mismatch continues. The moment supply catches up with demand the prices drop. This cycle keeps rolling.


Does the past justify the expectation?

Money speaks the language of mathematics.

Such as the dog that might or might not bite - future is the only thing I can’t predict. However, the past is a good indicator.

Compelling stories of why an idea will be the next big one, how it will change the world and make you a billionaire are nice to hear. Stories don’t add up to the bank balance. Please show me the numbers. Not just the last few months numbers, the numbers from a fairly long past.

Ask for the numbers, the profits from the past, returns over a long period of time, the order book, the cost structure, whatever other relevant number to justify the expectation. This is something your adviser should help with.

Put these together and you have a great yardstick to measure whether the investment makes sense or not.


Three awesome questions to ask your adviser about returns from investments

  • What is fair returns to expect from this investment?
  • Why do you think this investment will give this return?
  • What has been past performance - over a long period of time say 10 – 15 years

Good questions you should answer in your mind

  • Will the expected returns beat my inflation?
  • Does the reason why this investment will raise in value appeal to common sense?

You get the drift?


Now, returns don’t only mean what is available to take. It also means, what actually comes to your pocket. Costs and taxes can shrink the size of the money coming into the bank.

Know exactly what you would get from your investments – after paying your adviser, his boss, the regulator, the government, the governor’s dog and the whole machinery that keeps a watch on your money.

Read on here to know..

Aditya Shinde
15 September 2017
All is ok, but why all taxes are imposed on common man without any economic discrimination, why should poor & rich person in same get slab,do u think common man show his electricity bills, praperty tax, water tax & etc, as input tax? Actually it is favour to govt administration & business simplifications, this is not a favour to common the basic nessacity commodities like packed food items taxes are raised. Is it good to public?
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