The Real Rate of Return
Your portfolio says 12%. Your purchasing power says otherwise.
The feeling of 12%
You check your mutual fund statement. It says 12% annual returns. You feel rich. You open a compound interest calculator, punch in your SIP amount, and watch the number soar into crores.
This is the number everyone talks about. The number on CNBC tickers, in fund fact sheets, in conversations with friends. It is also not the number that matters.
The invisible cost
Inflation is the silent partner in every investment. It does not show up on your statement. No line item, no deduction. But it is always working — quietly reducing what each rupee can buy.
If your investments grow at 12% and inflation runs at 6%, you did not earn 12%. You earned something closer to 5.66%.
The nominal return is what your money does. The real return is what your money does for you.
The compounding math
Most people subtract: 12% minus 6% equals 6%. But compounding does not work with subtraction. The correct formula divides:
Real Return = ((1 + 0.12) / (1 + 0.06)) - 1 = 5.66%
The difference between 6% and 5.66% seems small. Over 25 years on a large corpus, it is not. That gap compounds too — working against you, year after year.
Purchasing power
Here is what the real rate of return actually measures: if you can buy 100 units of something today, how many units can you buy after your investment grows for a decade?
A corpus of ₹5 crore in 2050 sounds impressive. But if a modest monthly expense is ₹3 lakh by then, that corpus covers less than 14 years. The nominal number deceived you. The real number would not have.
Why the calculator shows "In Today's Value"
This is exactly why the FIRE Calculator adjusts for inflation. When it shows your future corpus "in today's value," it strips out the illusion. It answers the question that actually matters: what will this money buy?
The nominal number is a story. The real number is a plan.