How to Think About ROI When Choosing Between Asset Classes

Jun 20, 2025

3 min read

Returns are easy to calculate. But real ROI is more than a percentage.

A business owner once told me:

“Equity gave me 15%, but I felt more stress than return. Meanwhile, my rental property gave 5%, but felt like 15.”

Another said:

“I parked ₹10 lakhs in bonds because they felt safe—only to realize the post-tax returns didn’t even beat inflation.”

Return on investment (ROI) isn’t just about picking the asset with the highest number.

It’s about choosing the one that fits your goals, liquidity needs, and mental bandwidth.

Let’s break down how to think about ROI practically—so that every rupee you invest works smart, not just hard.

Step 1: Understand ROI Beyond the Headline Number

Most people think:

“Equity gave 12%, FD gave 6%, so equity wins.”

But real ROI must factor in:

Post-tax returns
Liquidity (Can I access this when needed?)
Volatility (Am I comfortable with the ride?)
Effort (Do I need to manage, monitor, or maintain it?)
Risk (What’s the worst-case downside?)

A 9% return that fits your timeline, taxes, and temperament is better than a 14% one that keeps you up at night.

Step 2: Match ROI to Purpose, Not Preference

Different goals demand different asset behavior.

Goal Type	Asset Class Examples	Why
Emergency fund	Liquid fund, Sweep FD	Stability + access
1–3 years	Short-term debt fund, low-duration bonds	Predictable ROI
5–10 years	Hybrid funds, conservative equity	Balance of risk and growth
10+ years	Equity mutual funds, index funds	High compounding potential
Passive income	Bonds, REITs, SWPs from hybrid funds	Cash flow focus

The best ROI is the one that fulfills the goal—not just looks good on paper.

Step 3: Account for Tax Impact

A 7% tax-free return (like some bonds or PPF) can beat a 10% taxable one.

Common traps:

FDs taxed at slab rate (often 30%)
Debt funds taxed post-2023 changes as per slab
Equity taxed at 10% LTCG over ₹1L

Always compare post-tax ROI, not pre-tax brochures.

👉 Use tools or consult your CA to do a “real return” comparison.

Step 4: Consider Liquidity Premium or Penalty

You may earn:

8% in a 5-year bond
6% in a liquid fund

But if your business needs cash suddenly, breaking the bond may result in losses or penalties—negating any extra 2%.

Ask:

“If I had to exit in 30 days, what would I get back?”

If the answer isn’t predictable, discount that ROI for illiquidity risk.

Step 5: Include Effort in Your ROI Calculation

Buying real estate? You’ll deal with:

Tenants
Paperwork
Taxes
Maintenance
Liquidity delays

That 6% yield isn’t passive—it’s work.

Ask:

“Is the effort worth the extra return compared to bonds or mutual funds?”

Sometimes, a lower-effort, lower-return asset wins on mental ROI.

Step 6: Blend Assets to Match Your ROI Comfort Zone

You don’t have to pick just one asset class.

Create a personal mix:

30% equity (for long-term growth)
40% bonds/funds (for income + stability)
20% real estate or REITs (for diversification)
10% liquid (for access)

This gives you a portfolio-level ROI that’s smoother, more predictable, and emotionally sustainable.

TL;DR – Too Long; Didn’t Read

ROI isn’t just a percentage—it’s a function of tax, time, access, and emotional comfort.
Match asset ROI to your goal, not your greed.
Don’t ignore tax impact, liquidity costs, and effort required.
Diversify to blend risk and reward in a way that fits you.
The best ROI is the one you stick with long enough to realize.

You don’t need to chase returns.

You need to design a return system that works under real-life pressure.

Because in the end, good investing isn’t just about “more.”

It’s about “more, when and how you actually need it.”