What is inflation?
Within an economy, inflation reduces your purchasing power. It is being driven by a general increase in the prices of goods and services. Simply put, your rupee will not be worth as much today as it was yesterday. Let us use an example to demonstrate the true meaning of inflation. How many cups of tea could you buy with a 10 INR note at a roadside vendor’s stall in 2002? At least 4 cups, preferably more. By 2023, you can only buy one cup of tea for that price. That is the definition of inflation. It affects not only the food you eat, but also every aspect of your purchasing journey.
How to beat inflation in India?
You will find multiple investment options in the market to beat the growing inflation. These include:
Direct investment in stocks
The stock market holds enormous potential. When it comes to investing, however, you need expert knowledge to deal with the volatility. You can buy stock on either the primary or secondary market.
For the first time in the primary market, the shares are available for subscription through an initial public offering (IPO). When you subscribe to an IPO, the company uses a computerised system to allot shares based on availability.
In the case of the secondary market, you simply log in to your trading account, choose the number of shares of the company you want to invest in, the price point you want to pay, and make the payment. Consider the company’s financials, shareholding patterns, and share price movement on the price chart over the previous year when purchasing stock directly.
Mutual funds investment
Mutual funds are relatively safer than stock investments due to diversification. Depending on your risk appetite, you can invest in debt-oriented funds, equity-oriented funds, or equity-linked savings schemes (ELSS).
In a mutual fund, the funds are managed by professionals. Therefore, you do not need to worry about market volatility much. Before investing in any mutual fund scheme, you should consider the following ratios:
Because of diversification, mutual funds are safer than stock investments. You can invest in debt-oriented funds, equity-oriented funds, or equity-linked savings schemes based on your risk tolerance (ELSS).
Professionals manage the funds in a mutual fund. As a result, you do not need to be concerned about market volatility. Before investing in any mutual fund scheme, keep the following ratios in mind:
- Expense ratio
It is the fee charged by fund houses to manage that specific scheme.
It indicates how volatile the scheme is in comparison to its benchmark.
- Sharp ratio
It keeps track of the scheme’s performance in relation to the risk it takes.
Mutual fund returns are typically between 10% and 15%.
Real estate investment is advantageous in two ways. First, it provides capital appreciation. Second, by renting it out for commercial or residential purposes, you can earn a passive income. However, investing in real estate requires a significant amount of money. The best option in this case is Real Estate Investment Trust (REIT).
A real estate investment trust (REIT) is a business that pools money from different investors and invests it in real estate. REIT portfolios typically include a wide range of properties such as hotels, retail centres, shopping malls, warehouses, and others. The income generated by these assets is distributed in proportion to the amount invested.
If market jargon perplexes you, simply invest in gold. It is one of the most valuable metals on the planet. In recent years, the price of gold has risen dramatically.
At the start of 2016, the price of 24-carat gold per 10 gramme was around Rs 23,000. The same quality of gold currently costs around Rs 52,000 per 10 grammes. As a result, you can compare inflation and investment returns here to determine whether gold is a good investment.
The primary purpose of an inflation-indexed bond, or IIB, as the name implies, is to protect investors from inflation. It enables you to earn consistent returns irrespective of inflation. This type of investment’s capital is directly proportional to inflation. It means that as inflation rises, so will your capital amount. The current interest rate is significantly higher than the rate promised at the outset of the investment. The best feature of IIB is that your capital is not lost in the event of deflation; only your interest income is reduced.
If you enjoy art or antiques, alternative investment is a good way to beat inflation. Vintage cars, paintings by well-known artists, and old-age coins are all for sale. The value of these items rises over time and can significantly outperform the inflation rate.
Other options include investing in hedge funds or investing in a potential start-up via unlisted shares.
Investment in commodities
Commodity investing entails purchasing foreign currencies, precious metals, oil, natural gas, and grains. You can trade commodities in India at any of the four exchanges listed below:
- Exchange of Multiple Commodities (MCX)
- Commodity Exchange of India (ICEX)
- Multi-Commodity Exchange on a National Scale (NMCE)
- Commodity and Derivatives Exchange of the United States (NCDEX)
Returns on commodities outperform inflation. However, because of the high volatility, the risk of capital loss is also high. So, before investing in commodity returns, consider your risk tolerance.
Rebalance your portfolio
In the current economic climate, the investment you made years ago may no longer be feasible. Not only does inflation rise over time, but so do your aspirations and goals. In this case, you should think about rebalancing your current portfolio. You could, for example, redeem your bank FD and invest the proceeds in a newly issued corporate bond.
HOW TO BEAT INFLATION IN INDIA?
The rising expense of living has caused anxiety and fear over the years. The impact of inflation may be felt everywhere, from the grocery shop to your financial portfolio.
Here are some strategies to combat inflation in India as prices rise.
TAKE TAX-EFFECTIVE ACTIONS
Tax savings may appear insignificant, but over time they have a significant influence on your wallet. Use wise tax-efficient techniques by choosing tax-advantaged accounts and investments that result in a lower tax rate on returns.
SPLIT YOUR PORTFOLIO UP
The impact of inflation is greatest on fixed-rate debt securities. For this reason, experts advise diversifying your portfolio to include investments with higher potential value in order to keep up with inflation. It lowers risk while assisting in achieving long-term returns. Considerable assets include things like real estate, gold bonds, mutual funds, cryptocurrencies, and more.
A new type of investment channel called a crypto SIP enables you to make a predetermined commitment on a regular basis towards buying a variety of cryptocurrencies. To navigate the choppy waters, a well-diversified asset allocation will aid in producing better outcomes.
RENEW THE VALUE OF YOUR INSURANCE METHODS
Today, insurance policies play a significant role in our lives. The many products, ranging from life insurance to health insurance, fulfil various functions. However, be sure that the rules you adhere to change with the times. Maintain your investment in policies that will benefit both your current and your future.
CONTROL YOUR SPENDING
Limit your spending and be direct! You can adhere to the 50-30-20 rule to avoid making unnecessary purchases that could drain your savings. You must keep close tabs on your spending and make strategic investments. Avoid developing a bad spending pattern.
STAY INFORMED ON INFLATION TRENDS
Predicting the fate of inflation is never simple. This is why it’s important to keep up with historical and contemporary inflation trends. Keep an eye out for recurring trends and asset holdings that have held up well. To navigate through historically unfavorable economic conditions, try to stay informed.