Investment
An investment is a monetary asset purchased with the idea that the asset will provide income or appreciate in the future and be sold at a higher price.
R – CUBE(Real Rate of Return)
The nominal return after compensating for factors such as Taxation and Inflation is called the real rate of return.
Example –
You invested Rs1lakh in a fixed deposit with interest of 10% for a period of 1 year and you are in the highest tax slab and the inflation during the period is 6%.
Taxation
So the Rs10000 Nominal return will be subject to a tax of 30%.So after tax your nominal return is Rs 7000.
Inflation
So the Rs 7000 nominal return adjusting after inflation of 6% during the one year period will be Rs 943
So the REAL RATE OF RETURN on a Nominal return of Rs 10,000 is just Rs 943 post tax and inflation.
BOTTOM LINE OF INVESTMENT IS R – CUBE TO BE POSTIVE