What is a ‘good’ return on your investment?

What is a ‘good’ return on your investment?

‘Return’ is the first word that comes to mind whenever you hear about an investment option. Return is the measure of performance and efficiency of an investment option. Everyone wants an investment with a better return potential but with underlying risk associated with the same.

Every investment gives return in different ways. Savings and bonds give return in the way of interest. Stocks and mutual funds pay out dividends. Instruments like stocks, bonds, mutual funds and ETFs also appreciate in value and provide capital gains when sold.

What is a ‘good’ return on your investment?

Everyone wants to get good returns. What is good to one may not be good enough for another. Categorization of good and not-so-good returns are derived from comparative analysis. Returns of various products are compared in consideration with features, time horizon and investor portfolio.

- Benchmark performance:

For example, mutual funds are compared based on their previous performances and their benchmarks. If a mutual fund is able to derive a sustainable and good alpha, i.e. performance over its benchmark, while keeping the beta (risk) low, then it is a “good” return. A benchmark is a standard set against a mutual fund so that it can be measured. Since 2012, SEBI has mandated mutual fund houses to have a benchmark to measure its relative performance. For example, if the Sensex has given a return of 12.65% in the last three months and a particular mutual fund has given 14.75% annualised return, then the relative performance is 2.1% more than its benchmark.

- Past performance:

Previous performance is often considered while making future investment decisions. It may not be the all-important feature, but you should give it a look before opting for a specific fund.

- Consistent Returns:

Some say that penny stocks can provide “good” return. But so is gambling -- if you get lucky. But what if you don’t? That’s where “good” investments come into play. “Good” return is consistent returns over a longer tenure.

Not just returns!

Returns are surely important but it is not the only factor that needs to be considered. Higher the return expectation, higher the risk. So, if you are not too keen on taking too much risk in your investment portfolio, then you would have to settle for lower returns and vice versa. If you need high returns, you must accept the volatility of your investment portfolio.

However, if you have time on your side, you can opt for high returns without risking your portfolio since the time horizon eases out market fluctuations.

So, to generate a good return, it makes most sense to consider all the following points of investing fundamentals mentioned below.
✓ Selection of right investments based on one’s risk appetite, investment goals and asset allocation
✓ Understanding before investing
✓ Having a long-term perspective for investment goals fulfilment
✓ Diversification of investment portfolio


Returns are important but it is not the be all and end all of investments. It is more important to stay disciplined because it can help you to achieve your financial goals

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.


Making your investor profile

Investor profile is all about knowing your preferences in investment decisions. Before you start investing, it’s important to know the type of investor you really are. More often than not, we assess our strengths and weaknesses differently. Going through a formal investment profiling would help in creating a portfolio for the long term without having to re-evaluate every now and then.So, making an investor profile depends on various factors like risk tolerance, investment goals, investment time horizon and changing financial circumstances and needs.To determine your investor profile, you could ask yourself a few questions that can help you self-evaluate.▪ Goal-based profiling This can be understood by taking your income and expenses into consideration and then evaluating your disposable income. Calculating your disposable income is important. It tells how much money you can invest every month. Once that is evaluated, there are a couple of funds that need to maintained. They are: o Contingency fund with at least 12 months’ expenseso Medical emergency fund for an illness which may or may not be immediately covered by health insuranceo Child’s education fund o Retirement fund Tip: There is not much you can do about your fixed expenditure like EMIs or other loan repayments. However, you can take stock of your discretionary expenditure and create a headroom for investment. ▪ Investment horizon This can be broadly classified as short-term, mid-term or long-term based on your tenure of investment. o Short-term investments are made for immediate goals in the next three years. These investments need to be kept handy and not be prone to volatility. Thus, it needs to be kept in a cash or liquid fund for easy access. Such investments are usually done to meet regular cash flow requirement and emergencies. o Mid-term investments can help you meet your financial goals in five to seven years. Since the tenure is not long enough, your investment can be parked in medium-term debt investments or bank fixed deposits or even balanced funds because market volatility does not affect its liquidity after three years. o Long term investments are for more than 10 years or indefinite timeline. Thus, equity exposure can be taken for long term investment needs.Tip: The earlier you plan for your investments, the better it is so that it can be planned well ahead and the power of compounding can really work and do wonders for your portfolio! ▪ Investment profile Once the disposable income and the investment horizon is known, the very objective of the investment needs to be ascertained. To determine an individual’s investment profile, his risk capacity, appetite and tolerance need to be known.✓ Risk tolerance is the amount of risk you can take in your investment portfolio without losing your sleep over the volatility of the portfolio✓ Risk capacity is the amount of risk you can afford to take so that your financial goals are not jeopardised. ✓ Risk appetite is the amount of risk you need to take in order to fulfill your financial goals. The combination of all three (as depicted in the picture) is the risk profile of the individual. Tip: You need to determine your risk-taking capacity and investment objective together so that you can maximize returns on your investment portfolio without taking too much risk exposure. ▪ Investment experience If one has a considerable experience in investing, his risk-taking capacity is more accurately determined than others since he knows what is expected from each investment. For new investors, it is inevitable that a new investment option needs to be explored bone-deep before taking the plunge.Tip: Age is often synonymous with lesser risk since time horizon is low. ▪ Asset allocation Asset allocation is all about choosing an investment strategy and products based on your risk appetite. Please note that it’s important to review your asset allocation once a year as it can change with time due to change in your investment goal and risk tolerance. Tip: Equity is healthy and good for your portfolio but so is debt. A mix of the two blended with your investment objective and horizon can be ideal. So, monitor your ideal asset allocation at all times, irrespective of the market situations and you will see a marked difference in your overall portfolio.ConclusionIn order to excel in your investments, you need to be completely honest in your evaluation of your investor profile. Self-evaluation can be quite tricky at times and thus professional help can help you define your financial goals. You need to assess your investment needs and then design an investment strategy more appropriately.Disclaimer:  Investment in securities market are subject to market risks, read all the related documents carefully before investing.

read more


Time plays the biggest role in successful investing

Time is a key factor in your success as an investor. With endless choices of investment options available, it’s quite complex to make the right choices that can contribute to successful investing. So, to make it work for you, one of the most important question to be considered is, ‘’what is your time horizon to achieve your end goal?’’. The answer can help you to major extent to decide on best suitable investment vehicle.Time can affect your investment in multiple ways. Let’s take a look at the investing guides.✓ Risk and time The risk tolerance level is affected by element of time. Let us understand this with an example. Let’s say you are planning for retirement which is several years away, then you can afford to invest in relatively risky and high-return potential assets like equity . That’s because you will have enough time to overcome market volatility. In case you have a shorter time span, say about two to five years, then you may want to go with investments that are stable and less risky, even if the returns are lower.   ✓ Growth potentialThe power of compounding takes time to work. So, the longer one remains invested, the better it is. Let’s illustrate this point with an example: A monthly investment of Rs 10,000 at 12% rate of return amounts to:   So, it can be easily seen with systematic investment of Rs 10,000 per month over the years, the amount compounds very fast when the number of years invested are high. ✓ Targeted objectiveGoals keep changing with age, change in lifestyle, etc. So, it’s important to start investing early to build successful portfolio. Goals can be both short term and long term. The timeline of your goal helps you choose the right investment option. For instance, if you have a short-term goal like buying a car, it is best to invest in debt. On the other hand, a long-term goal can be achieved by investing in stocks. You may say that stocks are risky but time generally has a calming effect on them. Give your stock investment some time to breathe and you’d see the famed volatility subside. The up-and-down nature of stocks usually tend to flatten in the long run. To surmise, time is one of the most important factors that affect investment decisions. It is also the catalyst to see your money multiply. What’s Next?Returns are a very important factor in investments but it is not the be all and end all. It needs to be weighed with risk and then chosen. However, return is the one factor that can be explicitly measured and thus plays an important role in our investment decisions. Disclaimer:  Investment in securities market are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Cost Inflation Index - Meaning, Calculation & Benefits

    Inflation is an economic term and referred to the continuous rise in the price of goods and services, thereby reducing the purchasing power of the money. The pinch of inflation is felt by all sections of the economy, be it, the consumers, investors, and the government.  And, even though it increases the cost of living, inflation is a necessary evil and desirable for the growth and development of the economy. For the reason of inflation, it is only fair to pay more for your goods like comb and brush over the years due to an increase in the price. For the same reason, it is unfair to pay capital gains tax on your assets without taking into account the impact of inflation on the value of the asset. Cost Inflation Index(CII) is the index to calculate the increase in the price of assets year-on-year due to the impact of inflation. What is the Cost Inflation Index? Cost Inflation Index or CII is an essential tool for determining the increase in the price of an asset on account of inflation and is useful at the time of calculating the long-term capital gains on the sale of capital assets. It is fixed by the central government and released in its gazetted offices by the Ministry of Finance every year. Capital gains are the profits arising from the sale of assets like real estate, financial investment, jewellery, etc. The cost price of the asset is adjusted taking into account the Cost Inflation Index of the year of purchase and the year in which the asset is sold, and the entire process is known as Indexation. Cost Inflation Index Calculation The cost inflation index calculation is done by the government to match the inflation rate for the year and calculated using the Consumer Price Index (CPI). Cost Inflation Index India for the financial year 2019-20 has been set at 289. Change of the base year for the Cost Inflation Index The cost inflation index base year was changed in the Union Budget 2017 from 1881 to 2001. The base year was changed by the government to enable accurate and faster calculations of the properties purchased before April 1, 1981, as taxpayers started to face problems with valuations of older properties. The base year has an index value of 100, and the index of the following years is compared to the index value in the base year to determine the increase in inflation. With the change in the base year, the capital gains and tax burden has reduced significantly for the taxpayers as it now reflects the inflated price of the asset realistically. The current Cost Inflation Index Chart for each year is as under- How is the Cost Inflation Index (CII) used in calculating capital gains To calculate the capital gains on your assets the purchase price of the asset is indexed by the cost Inflation Index using the formula below- Indexed cost of the asset at the time of acquisition = (CII for the year of sale/ CII for the year of purchase or base year (whichever is later))*actual cost of acquisition If suppose you purchased a flat in December 2010 for Rs 42 lacs and sold in Jan 2019 for Rs 85 lacs. Your capital gain from the sale of the flat is Rs 43 lacs. The CII in the year in which the flat was purchased is 148, and the CII in the year the flat was sold in is 280. The purchase price of the flat after taking into account the Cost Inflation Index is = (280/148)*Rs42 lacs= Rs 79. 46 lacs  This is the indexed cost of acquisition. Your long-term capital gain after taking indexation into account is Rs 85,00,000- Rs 79,45,946 = Rs.5,54,054. Long-term capital gains on the sale of property are taxed at 20% with indexation benefit. So, your tax liability, in this case, would be- 20% of Rs 5, 54, 054= Rs 1,10,810 Without indexation benefit, the capital gains are taxed at 10%. In this case, the capital gains would be- Sale price of the flat - purchase price of the flat = Rs 85,00,000 – Rs42,00,000 = Rs.43,00,000.  The capital gains tax without indexation benefit will be 10% X Rs 43,00,000 = Rs.4,30,000. Thus, indexation helps reduce the long-term capital gains and reduce the overall tax burden for the taxpayer considerably. Indexation benefit can be used for investments in mutual funds, real estate, gold, FMPs, etc. but is not applied for fixed income instruments like FDs, recurring deposits, NSC, etc. Few important tips to remember about the Cost Inflation Index- If you receive an asset as a part of the will, then in such the CCI for the year in which it was transferred will be considered and not the CCI of the purchase of the asset Indexation benefit for the cost of improvement of the asset is the same as the cost of improvement of the asset. Cost of improvement incurred before 1981 to be ignored. CONCLUSION Cost Inflation Index is an important parameter to be considered at the time of selling long-term assets as it is beneficial for the investors. Reach out to our experts at IndiaNivesh for any queries about capital gains arising from the sale of assets for correct guidance.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more
  • Dematerialisation of Shares – Meaning, Process & Benefits

    The online platform has revolutionised the way we live. Whether it is transacting, connecting with a loved one, getting updated about the happenings in the world, everything can be done online. When it comes to investments, the online platform provides ease and convenience. Investment in shares and share trading is a prevalent activity undertaken by many investors. They invest their money in the stock of a company with a view to earn profits when the stock value rises. When shares are purchased, share certificates are issued in physical form containing the details of the investor and the investor. However, these physical share certificates are inconvenient, and so the concept of dematerialisation has been introduced. Do you know what it is? What is dematerialisation? Dematerialisation of shares means converting physical shares and securities into an electronic format. The dematerialised shares and securities are, then, held in a demat account which acts as a storage for such shares. Dematerialised securities can then be freely traded on the stock exchange from the demat account. How does dematerialisation work? For the dematerialisation of securities, you need to open a demat account with a depository participant. A depository is tasked with holding shares and securities in a dematerialised format. As such, the depository appoints agents, called, Depository Participants, who act on behalf of the depository and provide services to investors. There are two licensed depositories in India which are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). Need for dematerialisation of shares Dematerialisation of securities was needed because it became difficult for depository participants to manage the increasing volume of paperwork in the form of share certificates. Not only were there chances of errors and mishaps on the part of the depository participant, but physical certificates were also becoming difficult to be updated. Converting such certificates into electronic format frees up space and makes it easy for depository participants to track and update their investor's stockholding. Benefits of dematerialisation for investors As an investor, you can get the following benefits from dematerialisation – You don’t have to handle the physical safekeeping of share certificates. Since your investments are converted in electronic format, you can easily store them without the risk of theft, loss or damage You can access your online demat account and manage your investments from anywhere and at anytime The charges associated with the demat account are low. Depository participants change holding charges which are minimal and you don't have to pay any stamp duty on dematerialised securities Since no paperwork is required to be done, the transaction time is considerably reduced Given these benefits, dematerialisation proves advantageous. Nowadays, the practice of holding physical securities has become almost obsolete and buying through a demat account has become the prevailing norm for investors. How to convert physical shares to demat? To convert physical shares to demat, the following steps should be followed – You should open a demat account with a depository participant. A depository participant can be a bank, financial institution or a stockbroker who is registered as a depository participant with the two licensed depositories of India You would then have to avail a Dematerialisation Request Form (DRF) from the depository participant and fill the form Submit the form along with your share certificates. The share certificates should be defaced by writing ‘Surrendered for Dematerialisation’ written across them. The depository participant would, then, forward the dematerialisation request to the company whose share certificates have been surrendered for dematerialisation. The request should also be sent to Registrar and Transfer (R & T) agents along with the company The company and the R & T agents would approve the request for dematerialisation if everything is found in order. The share certificates would also be destroyed. This approval would then be forwarded to the depository participant The depository would confirm the dematerialisation of shares and inform the depository participant of the same Once the approval and confirmation is complete, the shares would be electronically listed in the demat account of the investor Buying securities in a dematerialised form If you are looking to buy stock in a dematerialized form, here the simple steps that you can take for the same – Choose your broker for buying the securities and pay the broker the Fair Market Value of the securities that you want to buy The payment would be forwarded by the broker to the clearing corporation. This would be done on the pay-in day The clearing corporation would, then, credit the securities to the broker’s clearing account on the pay-out day The broker would then inform the depository participant to debit its clearing account and transfer the shares to the credit of your demat account The depository would also send a confirmation to your depository participant for the dematerialisation of shares in your account. The dematerialised shares would then be reflected in your demat account You would have to give ‘Receipt Instructions’ to your depository participant for availing the credit of shares in your demat account. This is needed if you hadn’t already placed a Standing Instruction for your depository participant when you opened your demat account. Similarly, for sale of dematerialised shares, the process is opposite. Trading in stocks in a dematerialised format is simple, quick and convenient. It has also become the practice of the current market. So, if you want to buy or sell securities, open a demat account and start trading in dematerialised securities. Should you have any doubts, get in touch with the team at IndiaNivesh who will look into your requirement and lead you towards a quick resolution.    Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more
  • High Dividend Mutual Funds

    Dividend mutual funds are a type of mutual fund that pays a regular dividend to the unitholders of the mutual fund scheme, thereby creating a regular source of income for them. The investment strategy of the fund manager is to invest in a basket of companies that have a steady flow of income and promise to pay periodic payment to the investors. Some investors prefer a regular source of passive income from their investments. Mutual fund schemes that offer a high dividend are a popular choice for such investors. The frequency of payment of dividends is decided by the fund manager and is usually fixed. Dividends can be paid daily, monthly, quarterly, six-monthly, or yearly, and the frequency of payment is mentioned beforehand. However, there is no guarantee on the rate and amount of the dividend to the investors and the payment of dividend is subject to the performance of the fund. There are 2 types of dividend mutual funds based upon the asset class that they invest in. 1. Dividend Yielding Mutual Fund (Equity) • Mutual fund schemes which invest more than 65% of their corpus in equity shares of companies • Like any other equity scheme, they have the potential for higher returns, but also carry a higher risk • Investors should invest in these schemes with an investment horizon of medium to long term 2. Dividend Yielding Mutual Fund (Debt) • Mutual fund schemes which invest more than 65% of their corpus in debt instruments of government and corporations like treasury bonds, commercial papers, etc. • These funds carry low risk and provide average returns to investors • Interest received from the various instruments is paid as a dividend to the investors• Investors should invest in these schemes with an investment horizon of short to medium term Tax treatment for dividend mutual funds Till now, dividend income received by the investor used to be recorded under the income head of “Income from other sources” and such income was tax-free in the hands of the investor. However, as per the Union Budget 2020, the DDT is now abolished for companies and mutual funds. From April’20 onwards, any dividend received above Rs 5000 will be taxed in the hands of the investor. It will be taxed as per the individual tax slabs for both equity and debt schemes. Only debt investors who fall in the lower slabs of 10% and 20% will pay lesser taxes on dividends. For all the others, the taxation would be higher going forward. Why should investors invest in high dividend mutual funds? Dividend mutual funds offer unique advantages to the investors, especially when the macroeconomic condition of the country is weak; these investments provide the reliability of income to investors. The benefits of dividend mutual funds which should be kept in mind while investing in such funds• Fund managers of dividend mutual funds invest in companies which can pay steady dividends and even if there is a slowdown in the economy, as companies do not want to send any negative signals, they avoid curtailing payment of dividends, thus making them less volatile than other funds.• Overall returns from these funds are less affected as compared to other funds as the dividends provide a hedge against market volatility.• In a low-interest rate regime, investors looking for a higher consistent income can opt for dividend mutual funds. Disadvantages of a dividend mutual fund scheme • Returns generated by dividend mutual fund schemes are lower as compared to growth schemes in case of rising markets• These funds are not suited for aggressive investors looking for higher returns from their investment• Moreover, with the abolition of Dividend Distribution Tax (DDT), investors in the higher tax-bracket will have to pay higher taxes on the dividend income. Role of dividend mutual funds in a portfolio Invest in dividend mutual funds with an investment horizon of 7 to 10 years for optimal returns. Investment in such funds should be a part of your strategic asset allocation and to lower the volatility of the overall portfolio. Aggressive investors can allocate less than 10% of their portfolio in such funds. Conservative investors, on the other hand, can allocate a higher percentage to these funds. Essential things to keep in mind while investing in dividend mutual funds • Conservative investors looking to invest in dividend funds should invest in large-cap funds, preferably of blue-chip companies that pay a higher dividend. Investing in companies with a higher proportion in mid & small-cap companies will increase the risk of the investment, thereby defeating the purpose of investment• Invest in a fund which has been in existence for some time and witnessed a few market cycles• Avoid investing in a fund with a small corpus to minimize risk as few wrong investment calls can significantly hamper returns• The expense ratio plays a vital role in determining the overall returns from a scheme. Choose funds with a lower expense ratio   CONCLUSION Investing in high dividend mutual funds is a good option if you are looking for a regular income through dividends. Consult our experts at IndiaNivesh to help you guide through the allocation of funds in these schemes as per your investment horizon and risk profile.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

    read more