Your 12% Equity Return Isn’t Real: Expert Explains True Post-Inflation Gains

Many Indian investors proudly assume their equity portfolios generate an impressive 12% return every year. But financial planner Ritesh Sabharwal says this belief is far from reality. Once inflation and taxes are factored in, the actual return is significantly lower.

In a detailed LinkedIn post, Sabharwal said, “Your 12% equity returns are actually 6.7%, and I haven’t even included taxes yet.” He argues that most investors calculate their growth only on paper, without adjusting for the rising cost of living.

Inflation Cuts Your Returns Almost in Half

Sabharwal explained that the true measure of wealth growth is the real return, not the nominal figure. Using the formula:

Real return = (1 + return) / (1 + inflation) – 1

a 12% annual return drops to 6.7% when inflation is assumed at 5%. And after long-term capital gains tax of 12.5%, the return further shrinks to 5.8%.

This means the “double-digit” return many investors celebrate is actually far more modest.

Debt Products Perform Worse

He warned that investors who rely heavily on fixed deposits, savings accounts, or debt funds often end up with negative real returns.

That’s because the interest they earn is lower than inflation—meaning the purchasing power of their money declines every year. Sabharwal said many people don’t realise this erosion until long after the damage is done.

A ₹1 Crore Example Shows the Big Gap

To highlight the gap between nominal and real gains, Sabharwal used the example of a ₹1 crore portfolio:

• 12% return gives ₹12 lakh on paper

• After adjusting for inflation + tax, the real gain is ₹5.8 lakh

The investor effectively loses ₹6.2 lakh to inflation and taxes alone.

Equity Still Essential — but With Realistic Expectations

Despite the reduced real return, Sabharwal emphasised that equity remains the strongest tool for long-term wealth creation. He said investors must focus on:

• asset allocation

• long-term consistency

• periodic rebalancing

He also added that beginners should simply start with an index fund to get disciplined exposure to the market.

His message is simple: Don’t celebrate headline returns—understand real returns.