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Three things that impact investment return − Money Essentials #5

by Money Puzzle   ·  April 4, 2022   ·  

You invest to earn a return. Hence, you need to know the key factors that can impact your investment return.

The first thing you have to watch out for is the QUALITY of the asset you invest in.
A good quality investment may falter but usually, over time, returns will meet your expectation. With poor quality investments, there is the danger of losses and losing your capital too. To ensure quality, do some thorough research about the investment option. If you are unable to, then outsource the selection to a trusted expert. Quality matters regardless of the time period for which you are investing.

Next, keep in mind INFLATION. Inflation refers to the yearly price rise in the economy, which ultimately lowers the purchasing power or value of your Rupee. Rs 100 today will be worth just Rs 94.3 after one year if the yearly inflation is 6%. Any return you earn on an investment is automatically marked down because of this inflation. If you are investing for a long period of a few years, look for good quality, inflation-beating returns.

Lastly, be mindful of TAX. Interest and dividend income or returns are taxed at your income tax rate. Any increase in the capital value of the asset is taxed using the capital gains tax rules. Usually, short term capital gains tax is higher than the long term capital gains tax. Bonds, equities, real estate and gold assets have different capital gains tax rules which you should be aware of.

For your long term investments, ideally, you should look for efficient post-tax, post inflation returns from a good quality asset.

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