Mutual Fund Return vs Inflation: A 1 lakh lump sum investment at a 12 per cent annualised return creates an estimated corpus of Rs 17 lakh in 25 years! But adjusted against a 6 per cent inflation, the estimated value of the same investment is just Rs 3,96,100 in today’s terms. Investment eats up a large portion of your investment. Long-term investment returns that may look impressive on paper may appear to be faded realities of themselves when adjusted against inflation.
How inflation impacts your investment returns and how large a corpus a 25-year-old investor may generate through a Rs 10 lakh lump sum investment by 60 years of age when their annualised investment returns are 12 per cent to 15 per cent and inflation rates are 4 per cent to 6 per cent, see our estimates to know!
Investment return vs inflation
See the example of an Rs 5 lakh investment at a 12 per cent annualised return in 25 years without adjusting to a 6 per cent inflation and after adjusting to it.
Amount- Rs 5,00,000
Investment return- 12 per cent
Inflation- 6 per cent
Real rate of return= (1+investment return %)/(1+inflation rate%) X 100
=(1+12%)/(1+6%) X 100
= 5.66 per cent
Investment duration= 25 years
Investment value without inflation= Rs 85,00,032.20
Investment value with inflation= Rs 19,80,495.86
You can see the stark difference between the two figures.
Benefit of calculating inflation-adjusted corpus
When you calculate a corpus adjusted to inflation, you get the present value of that investment. It helps you target the exact amount you may require to achieve your financial goals.
Calculation conditions for story
Investment= Rs 10,00,000
Investment returns= 12 per cent-15 per cent
Inflation rate= 4 per cent-6 per cent
Corpus generated (without inflation)= ?
Corpus generated (inflation-adjusted value)= ?
Corpus value (Investment Rs 10 lakh, investment return 12%, inflation 4%-6%)
Corpus value (Investment Rs 10 lakh, investment return 13%, inflation 4%-6%)
Corpus value (Investment Rs 10 lakh, investment return 14%, inflation 4%-6%)
Corpus value (Investment Rs 10 lakh, investment return 15%, inflation 4%-6%)
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
