Inflation is such a problem without noise, which can reduce the value of your money over time. It is necessary to save, but by keeping your money in the bank locker or by keeping it in the account according to the old way, you will not be able to secure your financial future. It is very important to understand how inflation can affect your savings. By picking up “Nivesh Ka Sahi Kadam”, you can make sure that money will continue to grow with time.
Keep in mind that saving is not enough, it is also important to invest money thoughtfully – because when your money is growing faster than increasing inflation, “Mutual Funds Sahi Hai” will also be accepted.
What is inflation and why is it important for you?
Explain inflation in easy language, it is an increase in the value of goods and services over time. This means that the price at which you are buying any goods today, in the same amount, they cannot buy goods or service or take small quantity. For example, if inflation is 5% annually and the price of something today is ₹ 100. The price of the same thing will be ₹ 105 next year. If your savings and investment do not increase in the same proportion compared to inflation, then your ability to buy things and services will decrease in future.
Inflation has a double effect on investment
1. Your purchasing capacity decreases
Inflation directly affects the devaluation of money (weakness of rupee). If your savings are already increasing, but the savings in proportion to inflation do not increase, then your purchasing capacity decreases in future. In simple words, your ability to buy things and services will be reduced.
2. Reduction in net returns
The ‘net return’ on your investment is the amount that you earn after subtracting inflation. They understand this by example. If your traditional deposit gets a 5% interest rate, but the inflation rate is 6%, then your net return will be reduced to (-1%). This is the reason that when the rate of inflation is higher, it can be a risky decision to depend on the old methods of savings and fixed income options.
How is inflation affects on different units of investment
● Fixed income investment (traditional deposit schemes, bonds): Such investment options are the most unprotected options in terms of inflation. Return is fixed in these, but due to increasing inflation over time, the amount of both interest and principal is devalued.
● Equity (Stock, Equity Mutual Fund): Stocks sometimes give faster returns than inflation rates. Especially if companies put a large part of the cost on consumers. However, if the inflation rate is too high, you can have a negative impact on your benefits and stock prices for a short time.
● Real State and Commodity (Gold, Oil): Can consider them a weapon to avoid inflation. Property prices and commodity prices typically also increase despite inflation, which keeps the share of net returns intact.
● Inflation-inflammatory bonds (Inflation-Endex Fund): These bonds have been prepared for the purpose of walking with inflation, as both the principal and interest payments are adjusted according to the inflation rates.
Why is investment better than savings
Saving is like saving a seed, but investing is like planting that seed in a garden. When you invest, your money gets a chance to become a tree. This tree will also get fruits and shadows in the coming years. That is, your money grows like a tree and will also make many of your work. When putting money in a locker or keeping ‘safe’ in a low -interest account, the value of money will increase much slower than inflation.
How to protect your investment than inflation
● Diversity in portfolio:
Your portfolio include equity, inflation-like value-increased property (such as real estate and commodity gold, oil, etc.) with international investment options. This can limit the risk associated with investment to a great extent.
● Choose inflation-inflammatory investment options:
The return with them runs in proportion to inflation. It retains your purchasing capacity.
● Change according to monitoring and need:
Monitor your portfolio from time to time and in view of inflation rate, change the investment strategy and process as per the need.
● Invest for development:
Try to invest in assets and funds that can give maximum net returns in a long time and have a capacity to give better returns than inflation.
Take the right steps: not just saving, not enough, also invest
We cannot avoid inflation, but its impact on your investment can be prevented. For this, you have to understand the effects of inflation and choose the right investment option for yourself. You can not only increase your money compared to rising prices, but can also stay one step ahead of it. When you understand the impact of inflation very thoughtfully and adopt the right investment strategy, “Mutual Funds Sahi Hai” becomes real in real.
Want to understand how inflation also eats your savings and to invest the best way to defeat it? In this video of Subbu, it is described in a very easy way, through examples and practical methods around us.
For more information, see here:
Disclaimer: Mutual fund investment is subject to market risk. Read all the documents related to the scheme carefully before taking the investment decision. Performance of a fund in the past is not a guarantee of performance in future.