Skip to main content

Stay one up on inflation by investing wisely

 

With inflation nearing double digits, you've got to review and plan your investments to increase your real returns.


   Inflation is hovering close to double digits and food inflation rules around 17.65%. This means, your investments have to earn double-digit returns merely to ensure that your savings retain their value. On his part, RBI governor has hiked the cash reserve ratio and repo rates by 25 basis points to fight inflation. Here are some ways for you to slug it out with the inflation demon.

Equities

Attack is the best defence. Traditionally, equities are known as the best defence against inflation. When you invest in a company, you are offering risk capital to that company. The company invests the money in various businesses with a view to generating returns that comfortably beat the inflation and reward shareholder with superior rate of returns. The economy is just recovering and with demand picking up, corporates should report higher earnings growth. Hence, investment in equities should help tackle inflation and pay off from a medium-to-long-term perspective. Ownership of business that generates superior return on capital invested leads to creation of wealth for the shareholders. Compounding along with substantial positive real returns ensure that inflation does not eat into the accumulated wealth.

Fixed Deposits

Fixed deposits must be seen in the context of prevailing inflation. When the inflation quotes at 10%, a fixed deposit at 7% rate of interest burns your money as the purchasing power of your money goes down due to negative real rate of returns. Hence, it is better to choose a vehicle that offers the best possible post-tax returns with high liquidity. It makes sense to study the interest rate cycles and short and long end of the rate curve before committing money here. After all, it must be noted that one can park the emergency funds here betting big on the low risk involved and ample liquidity.

Commodities

If you can't fight them join them. Going forward, emerging economies like India, will consume more energy and agricultural commodities for their growth. In this scenario, investors could look at going long on commodities. HNI investors in India to take advantage of the $200,000 facility [the government has provided] to buy agricultural and oil commodity ETFs abroad. Energy and food are the major components of an inflation index. Hence, one must look at hedging oneself by looking at ways to buy into those commodities. She recommends buying into an energy mutual fund or an agricultural fund for retail investors, though there are limited options in the same for retail investors. High net worth investors (HNIs) or sophisticated investors could look at buying agri-commodity futures on the MCX, though the transaction costs in the derivatives market could be high.

Real Estate

Several analysts believe real estate is strong bet against inflation since it is a real asset. So far house prices have proved this theory right. If financed with a loan, this is even better because the principal component does not increase but its real value declines due to inflation. We encourage clients to take advantage of the current low interest rates to buy real estate. So if you already have a house with a loan taken at a low interest rate on it, you could hold on to it and this could act as an inflation hedge. However, a word of caution — one must remember that one of the reasons for the global crisis was that real estate prices became an asset bubble. However, with the Indian economy being intact and the GDP expected to grow at 8.5%, inflationary pressures should drive up house prices in the future.

Gold & Precious Metals

The yellow metal has been the traditional hedge against inflation. For centuries, gold has managed to help individuals to maintain their purchasing power. Gold has limited industrial use and barring the consumption use towards jewellery there is little scope for gold to be consumed. It is seen as a monetary asset worldwide that acts as a quasi-currency. It is seen in the past that the gold does well when the uncertainty goes up and vice-versa. Post March 2009, though the world economy has seen good recovery gold has not lost much value, indicating an undercurrent that expects higher inflation as a by-product of the economic recovery arising out of stimulus. As the inflation across the globe rises, gold prices are expected to do well. In the recent past, the advent of ETFs has helped the Indian investors to take a position on gold with minimum transaction cost and with least tax burden. A point to note is that if Indian rupee hardens against the greenback, then Indian gold investors may not be in a position to enjoy the upside fully. Of late, platinum has also attracted investor attention in precious metal.

 

 


Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now