Definition
Real vs Nominal Return
Nominal return is the headline percentage gain on an investment; real return is that figure adjusted for inflation, reflecting true change in purchasing power.
A fixed deposit advertising a certain nominal rate may deliver little or no real return once inflation is deducted — and even less after tax. Equities and other growth assets aim to deliver positive real returns over the long run, which is essential for wealth that must last decades.
The distinction matters most for long-horizon goals. Two investments with the same nominal return can differ in real terms if held over periods with different inflation, and comparing options on a real, after-tax basis prevents the illusion that any positive nominal number is 'making money'.
Related terms
- Inflation-Adjusted ReturnInflation-adjusted (or 'real') return is the return on an investment after subtracting the effect of inflation, showing the actual growth in your purchasing power.
- Time Value of MoneyThe time value of money is the principle that a rupee today is worth more than a rupee in the future, because today's rupee can be invested to earn returns.
- Real Estate Capital GainsReal estate capital gains are the profits you make when you sell a property for more than its cost, and they are taxable in India as short-term or long-term gains.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.