The Buyt Desk
Inflation is high and prices of everyday supplies have gone up. People are finding it difficult to make the ends meet. Here is how you can be inflation ready.
In India, current inflation is the highest to date. It has even surpassed the Reserve Bank of India (RBI) estimation. The price of all basic commodities has increased including cooking oil, veggies, fruits, LPG, fuel and many more. People are finding it very difficult to make ends meet. Earning hasn’t increased but spending is increasing day by day. And this situation has put people in difficult situations. Indians have a habit of investing safely with zero risk and hence most end up in fixed deposits (FDs), public provident funds (PPF) and buying gold ornaments. Currently, inflation cannot be battled with these investments as their returns are much lower than the inflation rate. So one needs to thoughtfully invest and make good financial strategies.
The economy is not under our control and this will affect our savings constantly. Be it war or pandemic, such events will affect the economy and cause inflation. Not all investments are market-dependent. So you should plan your savings such that some portion is not vulnerable to market fluctuations which will be long-term and some with risk factors.
What plans does the common Indian investor do to beat the inflation?
You might have heard your parents saying that in your one month’s budget they would run the whole year. In today’s economy, the money you are earning is a depreciating asset. The only way to beat current rapid inflation is to invest wisely so that your money keeps growing and never stagnant. There are many options to invest with different risk factors and varied returns. With so many options available, you might have a hard time choosing one or few for yourself. You might be tempted to choose the one which yields high returns but does consider all other factors. Fixed deposits having a 5% – 6% interest rate were considered good investments a few years ago. And the same scheme is a negative investment as inflation is high and higher compared to the returns of fixed deposits. So positive investment can turn negative, and this is the power of inflation. Let us discuss various strategies to beat inflation and have a lesser impact of inflation on your financial plans. Below are a few routes that you can opt to have safer financial conditions.
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Budget and manage your expenses – For almost all Indians, swiftly rising prices are a reality check as many are hesitant with financial management. Before investing you should know your spending. List out your monthly expenses and know how much you will need so that you will know how much you have in hand to invest monthly. Budgeting is very important so that you do not overspend and know the spending limitations. When the prices of goods and services increase you have to either increase your budget or decrease the expenses by cost-cutting. There are a few simple tricks to achieve this –
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Map your everyday expenses.
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Be creative when it comes to your daily spending.
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Go for cheaper alternatives be it appliances or clothes.
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Allocate a lesser budget for eating out.
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Cancel the subscription that you rarely use like Netflix.
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Invest for a long term – If you are capable of stashing away your money for a longer duration then a long-term investment is the best option. The investments that have substantial returns on your initial investment are stocks, bonds and equity funds. Compounding, the 8th wonder of the world does this magic in the long term. Remember, not every long-term investment is capable of bringing you good money. Better to take help from a financial advisor when investments pose higher risks and little guarantee.
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Outside PPFs and FDs – Savings done through PPFs and FDs are not inflation-proof and money here will lose purchasing power. The interest rate offered for these is less than the average inflation rate. Much better options are real estate, stocks, exchange-traded funds (ETFs), mutual funds and gold. These can ensure that you stay ahead of the mass.
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Mutual Funds and ETFs –These are another inflation-proof investment as they have returns higher than the inflation rate. You can opt for SIP or lump sum investment but remember that they are volatile and high-risk investments. You can take professional help if needed.
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Real Estate – Land value in India has never dropped. Its value is always rising. This can also save you from rising inflation. Real estate is a good investment option in India. As property value increases, rent charges can also be increased. You can either directly buy the property or opt for real estate investment trusts (REITs). When small and medium investors want to participate in the commercial real estate market, REIT is the option.
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Gold – Indians have always loved investing in gold. It can save you against inflation. The gold rates are always increasing, even during tough times like pandemics. You need not always buy physical gold, but can invest in digital gold, gold ETFs and sovereign gold bonds.
Bottom Line
The economy is affected by inflation no doubt but it has no pattern. Inflation recurs frequently nowadays and traditional investment vehicles are not inflation-proof. To sustain in this rapidly changing world some good investments need to be made. Financial literacy is the need of the hour to save and grow the money you have earned.
