5 Investment Strategies to Beat Inflation

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Inflation is a macroeconomic statistic that has a direct influence on your money and assets. Inflation reduces actual rewards while reducing your spending power. Fixed income products like fixed deposits are particularly vulnerable in the current environment, as inflation is larger than the returns these securities provide. This indicates you’re losing cash. Savings accounts, government bonds, and other fixed-income investments yield lower returns. Returns should ideally rise in tandem with rising prices as inflation rises.

What Is Inflation?

Inflation occurs when the prices of everyday products and services, such as food, clothing, transportation, rent, entertainment, and so on, rise over time. It is for this reason that we may buy less for the same money.

Let’s look at an example of why inflation is terrible. If you had Rs. 100 in 1985, you could have purchased 12.5 gallons of gasoline. In 2007, you could have bought 2 litres of gasoline for the same amount of money. Meanwhile, you may only buy a litre of gas with Rs 100 today. That is how inflation eroded the value of the same Rs. 100 over time.

How can Investments help you beat Inflation?

Saving money isn’t enough to keep your money safe. This is because most savings products, such as savings bank accounts and PPFs, do not consistently outpace inflation over time. As a result, while investing in them may increase the corpus, the buying power of that money will decrease.

5 Ways in which you can beat Inflation through Investments

1. Equity

Equity investments include a reasonable amount of risk, but they also provide enough compensation. Equity investments have a 10-12 percent compounded annual growth rate (CAGR). Fixed deposits, on the other hand, often earn 4-6 percent. In order to overcome inflation, equity investments are a must-have for long-term financial goals. However, investors must remember that their investments should be based on their risk appetite and overall asset allocation. However, given the high levels of volatility, equities may not be ideal for short-term aims.

2. Real Estate

Real estate is an excellent choice to explore if you have a large excess to invest. The Indian public, particularly the baby boomers and generation X, see it as one of the most reliable investment possibilities. Real estate is the most illiquid investment choice, meaning it can’t be sold quickly to meet immediate cash needs. There is a solution called Real Estate Investment Trust that can help overcome this disadvantage.

The Securities and Exchange Board of India (SEBI) established the first REIT rules in 2007. REIT stands for real estate investment trust. On stock markets, REIT shares are exchanged. As a result, purchasing these shares would be an indirect real estate investment.

3. Gold

Gold, like commodities, is a traditional inflation hedge since it is regarded as a safe haven asset. In times of rising inflation, it preserves the value of your investments. Gold, for example, has an intrinsic worth that is augmented by its limited supply. In compared to other asset types such as bonds, gold is thought to hold its value during rising prices. The precious metal aids portfolio diversification, resulting in superior risk-adjusted returns overall. It has a liquid asset and no risk of default.

4. Mutual Funds

Mutual funds are another option that has recently gained a lot of traction. For the right reasons, too.

Mutual funds are the way to go if you’ve just begun working or don’t have a consistent source of income. A systematic investing strategy can be started with as little as Rs.500 (SIP). A financial professional, known as a fund manager, would combine cash from you and other investors to establish a fund tailored to your risk and return preferences. He runs the money and distributes the profits to you.

In India, mutual funds provide an equity linked savings system (ELSS), which is a very useful strategy. Despite a three-year lock-in period, this plan provides tax-free savings.

5. Inflation Indexed Bonds

One of the safest and most successful ways to protect against inflation is to invest in inflation-indexed bonds. The government issues a variety of bonds through RBI, including inflation-indexed bonds. This bond is unique in that it adjusts its principle amount to inflation fluctuations and pays interest on the updated principal.