How to Go One Up on Inflation
01 Sep 2022
What is Inflation?
Inflation is general rise in price on good & services thereby reducing the purchasing power of money. Simply put, Inflation is the reason your money can no longer buy the same things it used to earlier.
How Inflation affects you
Picture 1 - Real value of Rs 100 becomes Rs 29 at 6% inflation in 20 years
Picture 2 - Price movement of certain commodities (Rs per litre/Kg)
How to beat Inflation
The only way to beat inflation is to grow your money faster than inflation can erode it by looking at investments that offer return in excess to the inflation rate.
Asset-class wise comparison over 10 years
| Asset | Investment Value (Rs)* | Rate of Return (%) | Inflation (%) | Inflation-adjusted Return (%) |
|---|---|---|---|---|
| Equity | 3,33,598 | 12.8 | 6.0 | 6.8 |
| Debt | 1,85,822 | 6.4 | 6.0 | 0.4 |
| Gold | 1,69,854 | 5.4 | 6.0 | -0.6 |
*assuming an initial investment of 1 Lakh For the comparison, we have considered the BSE Sensex, Gold ETF and Government Securities (gilt). Inflation assumed at 6%. The comparison is for illustration only. Rate of Return as of July 2022
EQUITIES IS THE WINNER, BUT IT NEEDS THE RIGHT APPROACH
As shown above, investing in equities can help you beat inflation better than other asset-class over the long term and help you to generate real returns. Considering the volatile nature of equities, an investor can take Mutual Fund SIP route to take exposure to equities.s
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision
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