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The most volatile instrument of all, equity instruments are based on higher the risk equals to higher the gain principle. History suggests NSE or Nifty have provided a generous average return of 12.5 % in past 15 years, which is more than 5% of the average inflation rate. If we consider the average return of last 10 years it will rise more 3.5%, to 16%. This shows equity has given more than 20% returns in some periods, which makes it the most attractive phenomenon among investors.

However, a modest expectation of 12-14% should do no harm as patience is the key to build wealth. ROI is the percentage of return on the investment made during the year. What mileage is in automobiles is what ROI is in investments; therefore it is the answer to the most basic question of kitna deti hai? Any investors primarily choose an investment option on the basis of its ROI, therefore exaggeration in the same may lead to a huge deficit in actual return and thus collapse the very objective of the investment. Let us say if you want to build a corpus of 10 lakhs in 10 years of time span and expect a 20% ROI, you will have to invest Rs. 2615 every month. However, if the investment provides a mere 12% return the actual residue will be Rs 6 lakh, leaving Rs 4 lakh short. Hence it is necessary to have a realistic expectation about ROI, in order to meet the objectives in a timely manner. It is evident that each investing instrument has a different ROI, the expectation shall also match in the same manner. Let us check out how much expectations should be kept in each of these instruments and why.

Gold: A whopping 25% average return has been posted by gold investors during the past 5 years, making it a crowd favorite. However if the rise has been phenomenal in near future, it is mere 10% in last 20 years or 12% in last 15 years. Due to government regulations and security reasons, it is prudent to invest in gold as a hedging material rather than income. An expectation of 6-8% of ROI should be sufficient for this low volatile instrument.

Real Estate: This is the one asset where investors expect an extraordinary return, and you cannot blame them entirely, because, in cities like Pune or New Delhi, the prices of properties have given a mammoth return 20-30% within 5-7 years of time. The rise was not anticipated, but rising development paved way for it. However, it is a proven fact that no asset can provide such higher returns on a consistent basis as the real estate sector depends on the financial sector (bank loans) and the demand & supply of properties. Therefore a return of 8%-10% a year should be ideal for properties belonging in metro cities. However keeping in mind the new regulation , Liquidity factors while selecting real estate as an investment option

Government  and Corporate Bonds: A stable return-giving instrument comprising of government bond, treasury bills, corporate bonds, debentures have a proven track record of providing returns ranging from 8-12% over last 5 years. However a lot is dependent upon the bank repo rate in determining the returns over these instruments. The Reserve Bank of India plays a major role in these instruments and depending upon the economic condition of the country the prime lending rate are structured. Despite that a major upheaval is always unlikely in these rates hence a difference of 1-2% (addition or omission) should be kept in mind.

Mutual Funds: From return perspective mutual fund are categorized into active and passive funds. Return from active mutual fund largely depends upon ability of the fund manager to generate income. While the passive funds such as index funds or Exchange Traded Fund have the dependency on the underlying asset in which such fund invests. Active funds are managed by the fund house manager, who swaps underperforming scripts and actively keep a tab on the entire fund, as a result, this fund provides better return than passive fund. Whereas under passive funds, the manager has minimum task at hand and let the underlying asset do the work. The average annual return expected under active fund ranges from 15-17% , while under passive fund the same is 12-14%.

Every instrument have different expected returns, however risk profile of investors decides the investment decision. But is risk profile the only factor that should decide the investment? The answer is NO. Therefore mere risk influence should not supersede other factors which are as follows.

ROI must beat inflation. Number one thumb rule under any investment is its return or performance shall exceed or beat inflation. Going by the concept of time-value of money, it is stated that money is depreciating every moment, hence one must ensure their investments are future proof. For example, if your daily expenses today cost you Rs 15,000 per month, assuming an inflation rate of 4 to 5 % annually, the same expenses will cost you Rs 20,000 per month in your retirement. Therefore a must expected rate of return under such circumstances is 6% or higher, irrespective of the risk profile.

ROI must beat taxes. Every profit made on any investment is liable for capital gain tax, however, in order to promote household investment government, provides certain exemptions to investors. Return on any investment may beat inflation marginally, but this margin may be robbed by the taxes implied on it, hence it is essential to plan your investment and expect an ROI beating inflation post-tax implication if any.

ROI must beat fees. Fees are charges such as, fund managers fees, processing charges, stamp duty or brokerage. These charges are mandatory charges, paid at the time of every entry or exit depending upon instruments. The expected rate of return should always consider these charges and calculate on the basis of the remaining residue.

We make investments to fulfill our dreams, and it would be huge disappointment if these dreams are robbed by poor planning. Therefore it is very important to understand and set a minimum expected ROI for any investment after giving due importance to above factors.

(The writer is the founder, Money Mantra. Views expressed are personal)