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Rahul Dravid – Return of capital vs return on capital part 2

Last week i had written about some fraud investment scheme had promised sky high returns and conned many in Bengaluru, (http://blog.credocap.com/?p=467) turns out that the celebrities who lost money included the likes of Rahul Dravid, Saina Nehwal Prakash Padukone  etc.  As per reports they were promised upto 40% returns but did not get even their capital back ! The lure of return on capital blinds us to forget return of capital !

Seems Dravid had invested the amount 35 crs 3 years back today his complaint is that the firm owes him 15 crores in capital, the chances of recovering the money appears slim. Let us for arguements sake assume that he had invested the same 35 cRs in boring equity MFs 3, 5 and 10 years back. Taking the average return of 7.5%. 15% and 10% over last 3,5, & 10 years respectively we can see that the equity fund returns have not been that great ( 10% for 10 years ?? i can see people asking in disbelief).  Mints Expense Account column did an article with similar bent recently though on a totally different topic ( see here https://bit.ly/2IKvvJQ )

Amount Invested 35 Cr
No of years Returns (Large Cap Equity Funds average)
3 7% 42.87 Cr
5 15% 70.39  Cr
10 10% 90.78 Cr

At a not so great return of 10% the initial 35cr has become 90 Cr, Yet instead of this simple and well regulated form of investing, what was chosen was a high return get rich quick scheme that seems to have promised 40% return on capital but today many high profile celebrities are getting only 60% of their capital returned and 40% gone ! ( though they may get some of it back, it will be a long wait likely)

The tragedy of this story is that most of the celebrities involved can afford good lawyers plus they have other sources of wealth to tap into, which small investors who get sucked up in schemes like these dont have.

Would be better if investors focus on known risks (such as in equities) and get rich slowly rather than invest in get rich quick schemes that seldom give return of capital !

Happy weekend,

 

 

 

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