'Return is vanity, net worth...': Expert on why chasing high gains may not build wealth

While returns — like a mutual fund earning 18% per year — sound impressive, they can be meaningless if your personal finances are weighed down by debts like personal loans, car EMIs, or if you lack emergency savings. Essentially, good returns don’t guarantee financial stability if your liabilities and expenses are dragging your net worth down.

Many investors fixate on performance figures, constantly tracking their investments and asking questions like, “What’s the CAGR?” or “Did you beat the market?” But focusing on returns alone can obscure the true state of one’s financial health, warns CA Abhishek Walia. “Return is vanity. Net worth is sanity,” he says.

Understanding returns isn’t the issue. CAGR — or Compound Annual Growth Rate — is a widely used metric that calculates the average annual growth of an investment over time, assuming profits are reinvested each year. For example, investing Rs 1 lakh at a 10% CAGR grows to Rs 1.1 lakh in the first year and Rs 1.21 lakh in the second, with growth compounding annually.

However, strong returns in one area can’t compensate for broader financial imbalances. “You can make 18% on a mutual fund,” says Walia, “but if you also have a personal loan at 14%, a depreciating car EMI, and no emergency fund, your net position might be negative.”

This problem is widespread because many people don’t actually know their net worth. Ask someone about their salary, and they’ll answer quickly. But ask them their net worth, and most fall silent.

A key reason, Walia explains, is that many people in India aren’t taught how to calculate their complete financial picture. People often consider their home or fixed deposits as their only assets. On the flip side, they overlook liabilities like credit card balances, personal loans, or outstanding EMIs, giving them a distorted sense of security.

The result is a common confusion between income and wealth, ownership of material things and financial security, or buying property and genuine investing.

The solution doesn’t demand great wealth — just financial awareness. Walia advises individuals to:

Track their net worth every quarter

Subtract liabilities honestly from their assets

Review if their net worth is truly growing over time

“You don’t need to be rich to do this,” says Walia. “You just need to be aware. The earlier you know your number, the more time you have to change your story.”

Ultimately, true financial well-being is about seeing the whole picture — not just chasing impressive returns.