When you want to evaluate your investment’s return and your earnings from an investment, do not rely on the yield that a product displays.
Instead, do a bit of homework, either yourself or through your adviser’s help, and try to find out the internal rate of return, or IRR, of that investment. Here is why.
Yield versus IRR
The yield of an investment will tell you at what rate money has grown from time A to time B. An annual yield of 7%, for example, means that Rs1,000 at the start of the year has grown to Rs1,070 at the end of the year. This is a simple calculation. It will not be able to help you evaluate a stream of investment cashflows.
