A recent social media post by Abhishek Kumar, a Sebi-registered investment advisor and the founder of Sahaj Money, has garnered attention for shedding light on how numbers can be manipulated to confuse individuals rather than offering any secret investment formula.
Kumar’s post on LinkedIn raised a critical question: “How can an investment of Rs 36 lakh grow to only Rs 38 lakh over 30 years with 12% returns?” He pointed out a common mistake of mixing nominal (actual money) and real (inflation-adjusted) figures, emphasizing that comparing the two is akin to comparing apples and oranges, leading to misleading outcomes.
The core error highlighted by Kumar was comparing the total invested amount of Rs 36 lakh, which was in nominal terms, with the final value of Rs 38 lakh, adjusted for inflation. This mismatch created an illusion that the returns barely surpassed inflation, failing to provide an accurate representation of the investment growth.
Kumar explained that the flawed calculation made three critical mistakes: treating the initial investment as actual money while adjusting the final corpus for inflation, applying inflation only to the final value and not to taxes, fees, and commissions, thus distorting the actual costs and returns.
For a more accurate assessment of long-term returns, Kumar recommended either analyzing all figures in nominal terms or adjusting every aspect, including contributions, taxes, fees, and final value, for inflation. He cautioned against selective inflation adjustments that could mislead investors into underestimating the real returns from equity SIPs, which historically have outperformed inflation significantly over extended periods.
The post serves as a valuable reminder to retail investors that misleading presentations of numbers can lead to confusion. Kumar advised individuals to question the consistency of figures on the same scale before blindly accepting financial claims, emphasizing the importance of accurate and transparent calculations.
In conclusion, Kumar’s insights prompt investors to critically evaluate financial information and avoid being swayed by misleading math tricks. The key takeaway is that not all numerical representations in finance are accurate and reliable, urging individuals to exercise caution and diligence in assessing investment data.