Recently I rounded up 10 friends and asked them to gjve a hurdle rate that their investment should give.

Most of them had 8% for debt instruments and an amazingly fantastic range of 12% to 40% when it came to equity. Some of them BELIEVED that real estate HAD already given about 24% return over the past 40 years.

I then destroyed these myths with real life examples.

Then I asked them ‘How much do you think is the inflation in your own lives’…again they had no clue. However, since I had included the husband and wives, there was some hope. 3 of them had maintained an expense diary, and they knew what they were spending on. The so called finance knowing men had no investment diary and had NO clue on what returns they were getting on their investment.

So suddenly the numbers started flowing…vegetables were going up at 12%, but had a big seasonal variation. Education was not well recorded – the fees was going up at about 12-14%, but the ‘projects’ etc were perhaps going up faster. Eating out was also not well documented and the range of places where they were eating varied from 5* to clubs. Vacations, again not too well documented, and a constant upgrade was happening. Medicines and doctors were costing a bomb – 18%, BUT that included 80 year olds, operations, small children. So even in one family there was no great ‘like’ comparison.

Clothes too were poorly documented, and there was no buying pattern, but was not really bothering anybody about inflation. I guess organized retail had helped here. Petrol and car maintenance was easier to track.

So suddenly all of them said OUR HURDLE RATE HAS TO BE ABOUT 14%.

None of them had more than 30% in equities or INVESTMENT REAL ESTATE. One of the guys had 2 factories which could be called investment real estate, but all the others had only one residential real estate.

I said :

Hurdle rate of 14% is nice to talk IMPOSSIBLE to achieve on the full portfolio.

The only known asset that has got this kinda return was equities. However I mean direct equities, not MANAGED equities, where the only certainty is costs.

All of them HAD TO DRAMATICALLY pump up their equity component.

All of them HAD TO save a much, much larger amount, invest very smartly, and make sure that there was NO CAPITAL LOSS. This combination was absolutely essential, not to get rich, JUST TO ENSURE that their corpus lasted longer than they did. The only alternative was to die early.

I can go on and on….and I wish there was a nice smart personal finance institute that would do all such kinda research all over the country. We will have some authentic data across various strata of society, age groups, etc.

Amidst all this I saw an article on inflation by Deepak Shenoy….read on 

amuse yourself. If ‘headline inflation’ is 11%, EITHER your CORPUS HAS to be huge, or your lifestyle SIMPLER…because YOUR hurdle rate should be 15%. That is like DON. – ‘Pakdna mushkil hi nahi, na mumkin hai’….lol..



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  1. sir, i have been comparing our annual family expenditure since last three years: it has been going up on an average by 17 per cent so now i consider an inflation rate of 15 per cent for my retirement calculations., instead of the sarkari rates.


  2. We need to check how much of that is real inflation and how much is lifestyle inflation.

    For most folks lifestyle inflation has been causing major havoc e.g. going to CCD instead of having chai at Udapi restaurant

  3. SIR,

    Being govt.employee, I am considering Inflation Rate= DA we got.
    Subra sir, if real inflation rate is more than 14%, What should we do to beat inflation?
    Is investing in Direct Equities is the only solution?


  4. Last 12 years have been exceptional due to worldwide ‘loose’ monetary policies by central banks. This started in earnest immediately after the dotcom bust in 2001. Considering 2001 as the base price for a number of things, the back of the envelope calculation yields the following return rates (all internal before taxes):
    Gold: 17% (4400 => 29000 per 10 gm)
    Sensex: 19% (2200 => 19000)
    Real Estate: 20% (around mumbai/navi mumbai) (1400=>12000 psf)

    So my take would be the following:
    – Gold will give you zero percent real rate of return after adjusting for inflation. i.e. Nominal return will equal inflation
    – Sensex/Nifty should give you a nominal return of (Inflation + GDP growth) over the period
    – Real Estate should give a nominal return of (Inflation + GDP Growth + population growth of the city) over the period
    – All cash, FDs, life insurance policies (term or ulip) and anything denominated in rupees will give negative real return after adjusting for inflation (nominal return will be less than inflation)
    – Long term borrowers (at reasonable fixed interest rates) would be rewarded handsomely by having to repay in severely depreciated rupees as the years pass by!

    This of course assumes no bubble like conditions or that easy money will keep flowing via subsidies, bailouts, forex accumulation, and anything in general that increases deficits.


  5. Well well, someone really called a spade, a spade! Much appreciated! On the fact that the inflation we face as aam junta is much more than what is calculated by the wise minds published in the media. The pricing change is visible clearly in expenses like Auto/Taxi/Bus fares, Petrol/Diesel prices and the hikes in costs of other stuff that are way more than hikes in fuel, the rising cost of labor/ wages but no compensating rise for those whose DA is linked to the suppressed inflation figures. Food price in restaurants has shot through the roof & real estate is beyond reach for the vast majority. Bank deposits or PPF actually give a massively negative real return. Wow, truly, it is India Shining!!

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