Real Return

Real return is the return on an investment after stripping out inflation — i.e., the change in your actual purchasing power, not just the change in the nominal rupee/dollar value of your holding. Every long-horizon financial decision — retirement, education fund, buying-vs-renting — must be made in real-return terms, because inflation compounds silently and what looks like a positive return can actually be destroying wealth in purchasing-power terms.

The precise formula is (1 + nominal) / (1 + inflation) − 1, which for small numbers approximates to nominal − inflation. A bank FD paying 7% in a 6.5% inflation environment delivers a real return of just 0.47%; after 30% tax on the interest, the real return is negative. By contrast, an equity mutual fund returning 12% in the same 6.5% inflation regime delivers roughly 5.2% real — close to the long-run global equity real return of 4–6%.

Real returns for asset classes over the very long run (Dimson, Marsh, Staunton 2024 yearbook): global equities ~5.0%, long-term bonds ~1.5%, short bills ~0.5%, gold ~0.6%. Real estate real returns typically match GDP growth after maintenance costs.

Compute inflation-adjusted retirement and goal corpora using our inflation calculator, then plug the real-return assumption into our SIP calculator for a realistic projection.