Skip to main content

Inflation & You

   Inflation in emerging markets, including India, has been ruling high since for the past year. In India, the Reserve Bank of India (RBI) has taken some steps including tightening monetary policy and raising interest rates six times to control inflation. The inflation rate came down towards the second half of last year, but the price of food articles and some essential commodities have again started going up last month.


   Food inflation touched a 52-week high level and analysts believe that it will soon spread to a broader basket of items and result in higher Wholesale Price Index (WPI)-based inflation.


   These are some of the direct and indirect implications of a higher inflation rate:

Interest rate hardening    

The RBI has already done multiple rounds of monetary policy tightening. The interest rates have already gone up a couple of percentage points across the board. It is quite likely RBI would have to further increase the interest rate in its policy review due towards the end of this month.


   For you, it means higher EMIs on your loans.

Impact on stock markets    

The rise in inflation impacts market sentiments. Higher inflation helps in driving the interest rate higher and hence borrowing becomes costly, both from market or financial institutions. The valuation of capital-intensive companies and sectors comes under pressure as their margins decrease under higher interest burden. Therefore, higher inflation influences the outlook for interest-rate sensitive sectors in the stock market.

Commodity prices    

The price of many essential and primary commodities has shot up many folds in the last few quarters. Food inflation has again hit the 20 percent mark. People of every income category are facing the brunt of rising prices.

Strategies to cope with inflation    

High inflation is quite a complex situation and is unlikely to come under control in the near term. The implications of higher inflation are quite widespread, especially for the economically weaker sections of society. Uncontrolled inflation is actually destructive for a country as it de-stabilises the economy, as it leads to consumers and investors changing their spending habits.


   Here are some strategies you can adapt in the current situation:

Strategies for equity investors    

Inflation influences market sentiments and investors should remain cautious as the valuations are quite high at the moment. In the absence of other positive factors, the market tends to come down due to these negative sentiments.
   In addition to the general market direction, investors should remain cautious on their positions in interest rate sensitive sectors.

Strategies for debt investors    

Due to higher rate of inflation, most debt market instruments have become unattractive as real interest rate (interest rate after factoring the rate of inflation) has gone negative. Investors in debt instruments should exercise patience and diversify part of their debt into other instruments like gold and silver which have a better outlook in the short to medium terms.

Strategies for borrowers    

The environment is quite bad for borrowers. Interest rates have gone up across the board and people with large loans are paying higher EMIs. Since higher interest rates are here to stay for some time, it is advisable to look for alternative sources of income or reduce the loan burden by partial prepayment.

 

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
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