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CAN INVESTMENT OVERCOME MARKET-INFLATION ?

For most of us, the rising prices of everything we need and want is a painful reality. Every few months, we see that prices are going up and after a few minutes of complaining about this increasing menace in our daily life, we accept it and move on. However, this type of situation over a certain period of time, severely dent the purchasing power of common people and also reduce the value of money. The word, used to describe this uncertain situation is known as ‘Inflation’. During market-inflation, prices of the daily used articles rise high in price, creating uncertainty in the life of common people. This is exactly the reason, for which we can buy less items with same amount of money. Lets describe ‘Market-inflation’ with example – Suppose, a person had Rs 100 in 1985, then the person could have bought 12.5 litres of petrol with it. With the same amount of money, a person could have bought 2 litres of petrol in 2007. Meanwhile presently with Rs 100, a person can buy only a litre of petrol. That is how the same Rs 100 lost its value over time due to inflation. The inflation-rates, heard in news channels, are not exactly what the common people experience in daily life. Now, most importantly a question arises – ‘What should we all do to overcome this market-inflation?’  

To prevent loss of money, saving is not enough; because most of the saving-instruments like Saving-bank Account or PPF give returns that don’t beat inflation consistently over a long duration. So, when anyone invest in those saving instruments, one might grow the corpus but the purchasing power of that money will be lowered. Today, one can have the money to fulfill a goal, but if it does not grow faster or at least at same rate at the time of inflation, then in future, it will not be enough for that very same goal. Thus, investing in asset-class could be the best way to beat inflation over the long term and investing in equities through mutual funds can be a suitable path to fulfill this goal.

Inflation-hedging can also help to protect the value of an investment. Although certain investments may seem to provide a decent return, they can be sold at a loss when inflation is factored in.   A disciplined investor can plan for inflation by cultivating asset-classes that outperform the market during inflationary climates. ‘Beating inflation’ means earning higher returns from an investment than the inflation rate in the economy. If the rise in price levels is more than the returns, one is getting, then the returns will be nullified. While saving in this regard, is frequently thought to be sufficient; investment allows to expand savings; and turn them into an asset that grows in value over time. It however occurs only when investment is done correctly. If a person increases the returns on savings, using the correct investment instruments, then the person can stay up with inflation and have spare funds after setting the bills.

If a person does not undergo investment, then the person is allowing inflation to take away his or her own hard-earned money from him or her. The value of our money is decreasing every minute and we all are doing nothing about it. This is why, it is crucial to invest in products like Mutual Funds, that can beat inflation with a good margin.