a crisis do we realise that having a lot of illiquid investments is not good if they cannot provide you the cash in time to meet your obligations real estate investments may have returned 20 on an average over long periods but what would be your realised returns if you need the cash in a hurry a lot of real estate developers have found out to their dismay that assets do not equal cash finally the total costs we need to take care of the transaction costs for example the stamp duty in the case of real estate what look like attractive returns may in fact be mediocre or even poor once you consider the total costs of transaction the normal costs of brokerage transaction and stamp duties must be considered even more important are the market impact costs market impact costs refer to the cost of getting out of a position let us say you own an apartment and want to sell it in a hurry to raise some cash the price you will get will certainly be lower than the price you would get if you had some time to wait for the right buyers the difference in the realised price versus the fair price is the market impact similarly when selling stocks if you have to sell in a hurry and if the volume of the stock traded is not a lot then the price will fall as you start selling this risk is particularly large in small and some midcap stocks and then there are the taxes to be considered depending on whether you are going to pay long or shortterm capital gains or even business income can make a huge difference to your posttax returns so the next time someone tells you that a particular investment idea is going to generate 25 returns ask them what are the risks liquidity constraints and the total transaction costs the author is ceo md estee advisors private limited