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Are you earning negative returns on your investments?

Every investor invests their money with an aim to earn profits on their investments. However, the rate of return for the investment may not always be positive. In fact, the risk of earning a negative return exists in every investment. Inflation can impact our investments, in such a way that even though you’re making money. But in a real sense, you will not be making a net positive return on your investments.

Money plant investment

What is Negative Return?

A negative return occurs when investors experience a loss in the value of their investments during a specific period of time. For example, if an investor buys $1,000 of Company XYZ stock and then sells it for $500, the investor has a negative return of 50%.

While negative return is a possible risk in a market-linked investment such as a mutual fund or direct share. Fixed-income investments such as bank fixed deposits also carry a different kind of risk. In a market-linked investment, there is a risk of losing a fraction of your investment when the value of underlying securities falls. In a fixed-income investment, the risk of losing capital may not be there (or it may exist in some), earning a negative return on your investment is not very uncommon.

How Fixed-income investments can fetch negative returns?

investment returns

The negative return risk is primarily a consequence of rising inflation. It pulls the returns lower than expected and thus impacting the final return to an investor. For example, if a bank FD offers a return of 6 percent per annum and inflation is also 6 percent, the net return is almost zero. Thus at times, when FD rates are lower or the inflation is higher, the investment ends up earning a negative return. While the capital invested is safe and secure, the effective inflation-adjusted return could be low or negative.

Should someone avoid investing in bank FDs?

Fixed-income investments are actually more suitable for those investors who are looking for capital preservation rather than to grow money. It is suggested to take a balanced approach in your investment portfolio. If security is what you’re looking for, sure, you can invest in FDs. However, it is advisable to not invest more than 30 percent to 40 percent of your capital in the FDs as they’re not giving the best returns. Instead, you should place your remaining investment capital in other high-yield assets. For instance, gold can act as a valuable asset in times to come.

For more such updates, keep watching this space!

Business Daily News

RBI Releases Annual Report On GDP Growth!

Reserve Bank of India gave 99,122 crores of rupees to the central government. It is given every year, but this year the amount is huge due to the pandemic. This decision is taken by RBI Board in the annual general meeting where an annual report is also prepared. This report includes the current economic scenario going on in India.

Credit Growth

Credit growth is a measurement tool by which we can find out how much is the rise in demand for loans. Last year, the growth rate reduced so much that now in comparison to it we will see better growth now. Although, it is not the best. RBI predicts 10.5% growth because of the base effect. Bank has much liquidity and is in a strong position. The bank also stated that if a loan or credit is needed for the business firms, then banks are fully capable even in stressful scenarios.

The loan growth rate of banks rose to 5.6% on year till March 2021. It will aid further by liquidity support, Low-interest rates, and the government’s growth-enhancing steps. Moreover, the current Repo rate is 4%.

Inflation

If we see the CPI(consumer price index) inflation, It will be 5% during the year 2021-22. Internationally it is being predicted that there can be an increase in inflation globally. But for India RBI has suggested to state and central governments if inflation is to be controlled, they need to decrease the taxes on fuel. If the taxes aren’t reduced it will affect directly inflation. Consequently, the Repo rate will increase.

Bank Fraud

The fraud in private sector banks to the total value has increased to 33% in the financial year 2021 from 18.4% a year ago. The share of PSBs in fraud is more than that of the Private sector banks.

For more updates like these, keep watching this space!