Many fail to recognise the effect of taxes and inflation on the returns on invested money. If one invests in the RBI bond, which is fully secured, yielding 8 per cent annually, compounded half yearly with a lock-in period of 6 years and pays 33.33 per cent tax on the return and if average inflation during the 6 years was 6 per cent, at the end of 6 years, purchasing power of one's investment will be lower than what it was when he started.
Text: S. Kalyanaraman
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