Skip to main content

Beat the INFLATION

Looking for ways and means to insulate your investment from rising prices? Here are some strategies to stay tight and right


CHECKED your transport, grocery and utilities bills recently? You’d sure be losing sleep over ever-increasing prices. What’s worse, inflation figures look alarming and have already notched new peaks, fuelled by the recent hike in crude oil prices. The spiralling affect of inflation can not only derail your investment approach but also dwindle your returns. Here’s an investment guide on how you can insulate your portfolio against the menace of inflation.


CHANGE STANCE

In the current scenario of rising prices, analysts feel there is a need to review your financial plans and investment portfolio as the expenses and corpus required to achieve financial goals may increase. You need to shuffle your portfolio in such a manner that it can generate better inflation-adjusted returns. Also, you should avoid investments in illiquid assets with fixed returns as these restrict the chances of generating higher returns it’s advisable if you can try to exit from such investments and re-deploy the amount in asset classes that generate better inflation-adjusted returns.


It is, however, important that before re-adjusting your portfolio, you should keep certain factors in mind such as the cost involved for re-adjustment, risk appetite, and current and future financial needs. There are no magic bullets in investing and re-adjusting. It won’t make you rich overnight but what it will do is to significantly reduce your risk without affecting your returns. He advises that you should not re-adjust your investment portfolio in a hurry or just because of certain external reasons which are not in your control. Otherwise, you may end up losing in a big way, he cautions.


HEDGE YOUR BETS

If you feel your current investments are not generating the expected returns, you can start looking for avenues where the risk and returns are different from your existing investments. The investments, however, should not have correlation with the risk factor. Art would be a good bet, you can also invest in private equity and international funds but these are also not risk free. They come with their own share of risks. Some capital protected funds also can be looked at.


Financial Planners hold the view that investing in the right scripts is still the best hedge against inflation. Though they are vulnerable in the short run if the economy weakens, in the long run, they will yield a good inflation-adjusted returns, you can raise investment in gold. Historically, gold has proved to be the perfect hedge against inflation. So if you’re looking to leverage on gold, investing in gold mining and producing companies may also enhance returns. You may further consider other investment options such as commodity funds, arbitrage funds and capital protection bonds with partial equity exposure while re-constructing your portfolio.


TAKE A HOLISTIC APPROACH

Financial Planners believe that while attempting to beat inflation, you should build a sound portfolio of equity, debt and other investment instruments, tailored to suit your financial goals and risk appetite. For this purpose, you can compute the inflation-hedge ratio, which gives a rough indication of how well is your financial position, including how well your portfolio is protected against inflation. For instance, 1.5 inflation-hedge ratio would mean that current portfolio return is 1.5 times of current inflation. This ratio should be improved to keep your portfolio returns much higher than the inflation rate. Accordingly, you can change your investment approach and invest in higher return asset classes, such as equity, for long term and enhance the returns.


Diversification of investment is another important factor that can act as a hedge against inflation. The whole idea is not to put all your eggs in one basket. In other words, if you invest in a wide range of assets such as stocks, gold, real estate, mutual funds, bank fixed deposits and government bonds, where prices behave differently, the overall risk of your portfolio will be lowered.


THE PERFECT PLAN

In the current scenario, when commodity prices are skyrocketing, you should look to increasing inflation-adjusted returns of your portfolio. This, however, shouldn’t be the only reason for changing your asset allocation. It is ideal to ride through the volatility and not panic. But if you want to review your portfolio, it should be aligned with your goals, in a high inflation scenario, asset classes such as equities, commodities, real estate and gold should be preferred over fixed income instruments as they usually generate returns higher than inflation over a period of time.


Times are tough. But if you follow these simple steps, you may well insulate your returns from the rise in inflation.


BEAT THE BLUES

HERE’RE SOME INSTRUMENTS WHICH CAN HELP YOU GUARD AGAINST DWINDLING RETURNS

  • Arbitrage funds

  • Capital protection bonds

  • Gold funds

  • Shares Commodity funds

Popular posts from this blog

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

Capital Protection Oriented Funds

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   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
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