Skip to main content

How to avoid inflation from eroding your returns

Here are some investment strategies that help you beat inflation


   Fixed income investments are usually recommended for risk averse investors who are more concerned about preservation of capital. At the end of a two-year period, original investment will become Rs 5.83 lakhs. One needs to factor in inflation to understand Shekar's real returns.


   If the inflation rate was hovering at around seven percent, the real returns will be only Rs 10,750. This is a paltry return for a two year investment horizon. For those investors who swear by debt products, ever imagined what Shekar'e returns would be if inflation were eight percent or more? Only inflation-adjusted returns can throw light on your actual returns.


   In an inflationary economy, prices of goods and services head upwards. The official measure of inflation is the Wholesale Price Index (WPI) that is based on wholesale prices of 435 items. When locking money over a long term, investors should keep in mind that the dreaded inflation eats into your returns. So, if you are saving for retirement or for your child's marriage, ensure that the soaring inflation number does not leave you in financial trouble.


   Here are a few popular approaches to beating inflation:

Laddering    

Investors with a low risk appetite lock their hardearned money in fixed deposits (FD). Breaking a FD and reinvesting in another instrument is not without additional expenses. This technique also allows investors access to their money at short intervals for meeting their personal expenses


   In a laddering strategy, instead of locking the entire money in a single fixed deposit, it is broken into smaller portions. They are locked in different deposits having different maturity dates.


   If an investor has Rs 50,000, locking the entire amount in a 5-year FD prevents him from benefiting in a scenario of increasing interest rates. Under the laddering technique, invest a portion, say, Rs 10,000 in a one-year deposit, the next Rs 10,000 in a two-year deposit, the next chunk in a threeyear deposit and so on. Since the money matures at periodic intervals you will have lesser chance of incurring loss from premature redemptions.


   When the first year FD matures, lock it again in a five-year deposit. When the second FD matures, lock it again in another five-year deposit. Continue rolling them all over to five-year deposits when they mature.


   In a scenario of increasing rates, investors can reinvest the money that matures at the increased rate. Laddering prevents your entire money from getting locked up at lower rates, especially when interest rates are heading upwards.

Equity exposure    

Only higher returns on investments can beat inflation. It is essential for investors to build a portfolio mix of various asset classes based on their risk appetite and investment goals. Equity investments have proven to yield higher returns to beat inflation.


   Those with a moderate risk appetite can consider monthly income plans (MIPs) that are heavily tilted towards debt investments (75-80 percent) with some equity component. MIP is tailored for those individuals who regularly need money to supplement their income each month. Dividends on MIPs are taxfree in your hands unlike FDs. Due to the equity component of a MIP, the returns are higher than from traditional debt instruments.


   Aggressive investors can invest directly in the stock markets or through diversified equity mutual funds that give robust returns over a long term.

Gold and real estate    

Add gold exchange-traded funds or bars and bullion to bring stability to your portfolio in times of extreme volatility. In times of high inflation and depreciating currencies, the yellow metal has proven to yield good returns.


   Real estate is a wonderful option for investor who can lock their money over a long term. While the returns are phenomenal, liquidity is a prime concern. Both gold and real estate have historically fared well against the inflation monster.

 

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...

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...

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
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