Negative return is another term for loss incurred out of a transaction.
Return = Present value of investment – Initial Investment
When the present value of an investment is less than the initial amount that was investment, we say that the returns are negative for that particular investment.
A negative return out of any business venture indicates that the company had incurred loss during the period taken into consideration. It is more common in new ventures or startups where a large amount goes towards the capital of that company.
People often complain of earning negative returns on their investment in mutual funds and shares of companies. This is because when they were redeemed for money, the market conditions or the performance of the shares in question was not as good as when the mutual funds or the shares were purchased.
The market timing of purchase and redemption plays an important role in determining the returns out of an investment. It may happen at times, that a person may have an absolute profit out of an investment but if we consider the rate of inflation in that period, the returns will be negative. Products with potential for higher returns carry the risk of punishing with negative returns also.
Negative and positive returns in business goes side by side. Negative returns occur when the initial investment is more than the present value. It depends on various factors like the time of investment and withdrawal. It certainly plays a vital role in registring profit for positive returns and loss for negative returns.
The negative return is nothing but loss faced by the company. If we dream about large profits then there are also chances of huge losses. Many new companies and startup companies get negative returns. Though, with the period of time, things start to evolve but this is not probable condition.
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