Financial Calculators
Real Return Calculator
The only return that matters is the one after inflation. Convert any number to the truth.
Real (inflation-adjusted) return
5.66%
actual growth in purchasing power
- Nominal return
- 12%
- Inflation
- 6%
Real return uses (1 + nominal) / (1 + inflation) - 1, not simple subtraction. It is the only return that measures whether your wealth actually grew. Judge every investment, including safe ones, on this number after tax.
Nominal flatters; real tells the truth
A 12% return during 6% inflation is not a 6% gain in what your money can buy; the correct real return is slightly less, because inflation compounds too. The formula divides rather than subtracts, and the difference, small each year, matters over decades.
Run every investment through this lens, especially the safe ones: a deposit earning less than inflation after tax has a negative real return, a guaranteed slow leak dressed up as safety.
The formula
Real return = (1 + nominal) / (1 + inflation) - 1Worked example: a 12% nominal return during 6% inflation is a real return of 5.66% per year, not the 6% that simple subtraction suggests.
Frequently asked questions
Why divide instead of subtract?
Because both your money and prices compound. Subtraction overstates the real gain, increasingly so at higher rates.
What real return should I aim for?
Long-term equity in India has historically delivered mid single digits real; anything consistently positive after tax is doing its job. Negative real returns on long-term money are the thing to eliminate.
Should I use post-tax numbers here?
Yes, for the truest picture: enter your nominal return after tax, then adjust for inflation. Order matters less than including both.
Does this apply to salary growth too?
Absolutely. An increment below inflation is a real pay cut, a lens worth applying beyond investing.
Measure in purchasing power.
We build portfolios to beat inflation after tax, because that is the only victory that counts.