The Inflation Drag on Returns

What do you think is the annualized inflation adjusted NIFTY 50 return is from 1991 through 2016? Hint: Gross returns were ~13%
Gross vs. Real NIFTY 50 returns
It was 5%

The Midcap index was created much later. So to keep things on an even keel, if you run both NIFTY 50 and NIFTY MIDCAP 100 between 2002 and 2016, it turns out that their real returns were about 7% and 13% respectively.

So,

  1. The asset class that you pick should jive with your time horizon. No point investing in NIFTY 50 (or large-caps, for that matter) if you have a 10+ year time-horizon.
  2. The market demanded high gross returns because of high inflation. If the RBI’s commitment of a 4-6% inflation band gets fully priced in, expect gross returns to come down in the future.
  3. Neither market returns nor inflation is under your control. However, your lifestyle inflation is all on you.

Code and additional charts are on github.