why can i not just look at the total cash returns when comparing two differernt investments,...

why can i not just look at the total cash returns when comparing two differernt investments, reasons?

Expert Solution

It is never advisable that we look at just the total cash returns while comparing two different investments because, the absolute returns doesn't give the full picture and is not accurate in defining the return because dynamic returns need to be benchmarked and then.time period of investment matters.

For instance, if you have invested 10,000 in 2015,in a fixed deposit that yields you 15,000 I.e, pre tax plus interest after five years in 2020.At the Same time you have a debt mutual fund investment started with 10,000 in 2016,and it increased to 14,000 in 2020.

If you compare both simply, we may come to an.opinion that, mutual fund investment done well,but completed only four years compared to five years of FD. So, if we just use absolute returns, they cannot be compared strictly for the two products.

Hence, the comparison of two different investments cannot be done just by looking at total cash returns.

ekkarill92 answered 1 year ago

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