One of the critical but most difficult aspects of investing successfully is knowing what is called base rate. This is simply the long-term expected rates of return from different asset classes. The reason it is difficult to calculate base rate is that there are too many variables in such calculation. What is the expected return from stocks? That depends on start date, end date, holding period, kind of stocks and so on. The proxy for stocks of course is an index and so it is possible to create a pattern of return from Sensex or Nifty.

Unfortunately, most investors don’t have access to the data and cannot do the calculations right. At least the data for Sensex and Nifty are easily available. It is hard to get the data for other asset classes. It is impossible to get the data for real estate.

This is an excellent opportunity for companies and intermediaries to peddle lies or at least create confusion.

Take a look at the ad from Hiranandani group, a controversial name in the real estate market. The ad says seed your investment in Hiranandani Forture City.

The advertisement exhorts you to invest money in Hiranandani Fortune City, Panvel as it claims it will reap better returns than fixed deposits, gold and stock markets. The ad is rife with holes and wrong assumptions.

1. Over what time horizon are these returns compared? Though no data is available on real estate transactions; we all know that over the long term equity has outperformed all major asset classes

2. What is the percentage returns that the project will deliver and what values have been assumed for gold and stock markets

3. What assumptions are used to calculate such returns

4. What is the sample that is considered to make such calculations and whether there are any outliers that made the conclusions biased

Given Hirnandani Group’s reputation, how high are the risks for this particular project?

And then comes the disclaimer: “perspectives are an artist’s impression and images shown are for representation purpose. The project is subject to approval from concerned authorities & may change as directed by respective authorities.” What it should have added and did not add are as follows:

1. Out of the government-sanctioned built-up area for development of Powai land, Hiranandani utilised only a part, while the rest was converted into luxury apartments and sold at a premium price. A special court has asked the Maharashtra Anti-Corruption Bureau (ACB) to inquire into a criminal complaint filed against real estate developer Niranjan Hiranandani and a senior IAS officer in connection with the alleged irregularities in a housing project at Powai in Mumbai. Click here to find more details.

2. The Anti-Corruption Bureau (ACB) court rebuked ACB for filing the closure report in the Rs45,000 crore Powai land scam case, without producing the investigation report. Property tycoon Niranjan Hiranandani, co-founder of Hiranandani Group, along with several other bureaucrats was accused in the scam. “Before closing the scam, the court will go through the investigation report and the issue will come up for hearing on Februray 15”, said Special Judge V A Daulatabadkar. Click here and here to find more details.

3. The Bombay High Court has ruled that prima facie Hiranandani Palace Gardens has defaulted on loan repayment to Tata Capital Financial Services and asked it to disclose all its assets, in an interim order. Tata Capital had filed a winding-up petition against Hiranandani Palace Gardens, which has undertaken township projects in Chennai and at Panvel near Mumbai, over alleged default of term loan worth Rs76 crore. Read entire article here.

4. The Bombay High Court has stopped the Hiranandani Developers group’s plans of constructing low- cost housing on land parcels earmarked as "open space" for eight societies constructed between 1995 and 2007. Click here to find more details.

5. Income tax department conducted searches simultaneously at about 20 locations of Hiranandani group in Mumbai, Bangalore, Chennai and Hyderabad. Read entire story here.

Investors who have put money in poor quality stocks have suffered losses. Many investors have lost money having deposited it in cooperative bank that failed. Lakhs of people all over the country are in despair having given their hard-earned money to builders from Unitech to Parsvnath. Investing is not easy. The very first step is calculating base rates. Don’t get carried by misleading ads.