We all want our money to grow. But how do you actually know if your investment is performing well? That’s where Return on Investment, or ROI, comes in. It’s a simple yet powerful way to measure how much profit you're making from your investments. Whether you're putting money into mutual funds, real estate, or even starting a side hustle, ROI helps you understand if your investment is worth it.
And if you are comparing different options like mutual funds versus fixed deposits understanding ROI can help you choose what aligns best with your financial goals and risk appetite. Compare mutual fund options now!
Now, what exactly is considered a “good” ROI? In general, a return of 5–7% is often seen as reasonable, while anything above 10% is considered strong. Of course, your expectations from an investment will depend on your goals, timeline, and the level of risk you’re comfortable with.
In this article, we’ll break down how ROI works, how to calculate it, its pros and cons, and how factors like inflation can influence your actual returns. You’ll also learn how ROI compares across various types of investments—from long-term options like stocks and real estate to short-term avenues like savings accounts and treasury bills.
A good return on investment
A “good” return on investment doesn’t mean the same thing to everyone—it depends entirely on your financial goals and how much risk you're willing to take.
For example, let’s say a couple starts investing when their baby is born, aiming to cover college tuition 18 years down the line. In their case, a good ROI is one that helps their savings grow enough to meet that goal—consistently and safely over time.
Now, consider another situation. Imagine you earned 5% returns from a fixed deposit in a reputed bank. It might not seem like much, but it’s a safe and stress-free return. Compare that to someone earning the same 5% return after spending a year trading stocks based on tips from social media, enduring sleepless nights and high market risks. In that case, the effort and stress just don’t feel worth it.
A good ROI is one that aligns with your goal, suits your risk tolerance, and justifies the effort you put into the investment.
The key is to match your investment style with your timeline and comfort level mutual funds, for instance, offer options ranging from low-risk debt schemes to high-growth equity plans, making it easier to align with any goal. Explore mutual fund options based on your goals
How to calculate ROI?
Calculating ROI is easy—and it gives you a clear picture of how much profit you’ve made relative to your investment.
Here’s the basic formula:
ROI = (Net Profit / Investment Cost) x 100
Or, if you’re using the present value:
ROI = ((Present Value - Cost of Investment) / Cost of Investment) x 100
Let’s look at a quick example. Say Mr. A invested Rs. 10,000 in company shares a few years ago. He sells them now for Rs. 13,000.
ROI = ((13,000 – 10,000) / 10,000) x 100 = 30%
That means Mr. A’s return on investment is 30%. However, this doesn’t include other costs like brokerage fees or taxes. So always remember that ROI gives a general idea, not an exact net profit.
What’s great is that ROI can be used to compare different investments. Once you know the percentage return, you can check how one investment stacks up against another—across stocks, mutual funds, real estate, or even a business venture.
How to use ROI?
ROI isn’t just a number—it’s a tool that helps you make smarter investment decisions. Whether you’re a business owner, investor, or just someone trying to track how well your money is working, ROI tells you if the return is worth the cost.
For example, imagine a business owner invests Rs. 10 lakh to expand a factory with a new assembly line. Thanks to that, the business sees an increase in sales worth Rs. 1 crore. That’s a 900% ROI—a clear win!
Or take a tech company that spends Rs. 25 lakh to develop new software. Within a year, it earns Rs. 35 lakh in new revenue. That’s a 40% ROI, which shows the investment paid off.
However, ROI is only as accurate as the data you feed into it. If your cost or revenue estimates are off, your ROI will be too. It also doesn’t factor in risk or uncertainty. So when using ROI to evaluate investment opportunities, consider the full picture—not just the math.
Long-term vs Short-term investments
When it comes to investing, your time horizon matters a lot. Are you planning for a short-term goal, like a vacation or a car? Or something long-term, like your retirement or your child’s education?
Here’s how the two compare:
Long-term investments |
Short-term investments |
Held for years |
Held for a few months to a couple of years |
Less liquid |
More liquid |
Higher potential returns |
Lower returns |
Best for wealth creation and retirement planning |
Ideal for emergency funds or short-term purchases |
Long-term investments allow your money to compound, meaning your returns also start earning returns. But they also come with more ups and downs along the way.
Short-term investments, on the other hand, are great for flexibility and safety. You can access your money easily, but you might earn lower returns.
A healthy investment portfolio usually balances both so you are prepared for both tomorrow and twenty years from now.
Examples of Long-term investment
Long-term investments are where your money gets time to breathe—and grow. Here are a few classic examples:
Stocks and shares: Investing in quality stocks or IPOs can give you exposure to a company’s long-term growth. But stock markets can be volatile, so patience and strategy are key.
Real estate: Property values tend to increase over time. Whether it’s residential or commercial, real estate can deliver solid returns—but only if you’re in it for the long haul.
Target-date funds: These are mutual funds that automatically adjust your asset mix based on your target goal year—like retirement in 2045. The closer you get to your goal, the more conservative the fund becomes.
If you are aiming for wealth that grows with you not just overnight long-term investments can be your most reliable ally. Mutual funds, especially those tailored for long-term goals, offer diversified exposure, professional management, and gradual portfolio rebalancing making them ideal for goal-based investing like retirement or child education. Explore mutual fund options for long-term growth
Examples of Short-term investment
Short-term investments are perfect for goals that are just around the corner—say in a few months or a couple of years. These are low-risk options that keep your money safe while still giving you a modest return. Here are a few popular choices:
Savings accounts: They’re easy to open, offer some interest, and let you withdraw funds anytime. Some banks even offer deposit insurance, giving you peace of mind.
Certificates of deposit (CDs): These are fixed deposits for short periods like 6 to 18 months. Banks and credit unions typically offer slightly better interest than savings accounts, and they’re considered very low risk.
Treasury bills: Issued by the government, T-bills are short-term debt instruments that are virtually risk-free. While the returns may not be high, they’re ideal for parking surplus funds safely.
Short-term investments are all about balance keeping your money secure while offering just enough growth to beat basic inflation or save for short-term needs like travel, gadgets, or emergency funds.
What if your investment is performing below its average?
It’s natural to feel anxious when your investments aren’t doing well. But remember, markets are always moving—there will be ups and downs.
One quarter may deliver fantastic returns, while the next could bring a slump. Don’t panic. The key is to stay calm and avoid making impulsive decisions based on short-term trends.
If you’re invested in high-risk assets like stocks or real estate, there will be times your portfolio dips in value. But if your horizon is long-term, these assets tend to recover and even outperform over time. The returns you aim for often come from riding out the tough times, not timing the market perfectly.
So, when things aren’t looking great, remind yourself why you invested in the first place. Stay the course, review your goals, and give your investments time to grow.
Understanding inflation’s impact on your returns
Even if your investments are making money, inflation can quietly chip away at your actual earnings. That’s why it’s important to consider the “real” rate of return—what’s left after accounting for inflation.
Let us say your fixed deposit earns 5% interest annually, but inflation is running at 6%. Your real return is actually negative 1%. Even though your money is growing in numbers, its purchasing power is shrinking.
This is why purely relying on low-interest options like savings accounts or FDs may not work for long-term goals. While they’re safe, they often don’t outpace inflation.
If you are saving for something years down the road—like your child’s education or your own retirement it’s better to allocate more money to investments that historically beat inflation, like equity mutual funds or real estate. These carry more risk, but they also offer better chances of growing your wealth over time.
What is considered a good ROI for investing?
What counts as a “good” return on investment really depends on what you're investing in and what your financial goals are. There’s no one-size-fits-all answer—but here are some general benchmarks to help you evaluate.
For most people, a positive ROI between 5% and 7% is seen as a healthy return. It’s enough to beat inflation and show that your money is growing.
An ROI above 10% is considered strong, especially if it’s consistent over time.
When it comes to stocks, an inflation-adjusted return of around 7% is often regarded as a solid performance.
Mutual funds in India have delivered average annual returns of about 20% over the last decade, making them attractive for long-term investors.
Bonds usually yield 4% to 6%, while gold becomes appealing when returns cross the 5% mark.
Real estate is often seen as successful if it fetches returns around or above 10%.
And for high-risk investments like crypto or peer-to-peer lending, investors usually expect double-digit returns to justify the risks involved.
A good ROI is not just about high numbers it is about returns that align with your goals, time frame, and how much risk you're willing to take.
Limitations of ROI
While ROI is a handy metric, it doesn’t tell the full story. It has its drawbacks—especially when you're trying to compare different kinds of investments.
It ignores time: ROI doesn’t consider how long it takes to earn your return. A 30% ROI over 1 year is very different from the same return over 5 years.
It overlooks scale: A high ROI on a small investment might not be meaningful. Earning 100% on Rs. 1,000 is great in theory, but it won’t move the needle financially.
No risk context: ROI doesn’t tell you how risky the investment was. Two assets might show the same ROI, but one could be significantly riskier.
No external factor adjustment: ROI doesn’t account for inflation, market volatility, or fees—which all affect your real earnings.
In short, ROI is a great starting point but for smart investing, you need to pair it with other metrics like risk-adjusted return, time horizon, and investment goals.
Conclusion
Return on Investment (ROI) is a simple yet powerful tool to measure how well your investments are doing. It helps you compare different options, evaluate performance, and make informed financial decisions. But like any tool, it has its limits—so use it alongside other factors like time, risk, and market conditions.
If your goal is to grow wealth consistently, focus on building a balanced portfolio that includes long-term and short-term investments. Keep inflation in mind, stay invested through market ups and downs, and track your progress. To make smarter ROI-driven decisions, explore mutual fund options that match your financial goals, time horizon, and risk appetite. Compare mutual fund options now!
Mutual funds are an excellent way to achieve a good ROI because they pool money from many investors to invest in a diversified portfolio of assets. For those looking to maximise their returns while managing risk, consider exploring the mutual fund schemes available on the Bajaj Finserv Mutual Fund Platform. You can compare 1,000+ schemes and use handy tools to make the best investment choices.
