Real Return
The return on an investment after adjusting for inflation, measuring the gain in purchasing power.
Formula
Real Return = (1 + Nominal Return) / (1 + Inflation Rate) - 1
Unit
%
In depth
The real return is the only return that matters, because it states whether the investor can buy more than before. Subtracting inflation from the nominal return is a common approximation and is inaccurate at higher rates — the division formula is the correct one. Tax makes it worse, because tax is charged on the nominal gain including the inflation component, so an investor can pay tax on a real loss. This is the strongest argument for instruments whose returns exceed inflation by a meaningful margin rather than by a fraction of a point.
Worked example
A 7% nominal return with 6% inflation gives a real return of 1.07 / 1.06 - 1 = 0.94%. After 30% tax on the 7%, the after-tax nominal is 4.9% and the real return is 1.049 / 1.06 - 1 = minus 1.04%.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Real Return” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.