The constantly growing prices for consumable products are a major source of anxiety for people. Prices rise every few months, never to fall again. An egg that used to cost 25 paise a few decades ago now costs Rs 8. Similarly, a Rs 100 currency note had far more purchasing power a few years ago than it does today. This is referred to as inflation.
Inflation diminishes your purchasing power. If you do not raise your profits and invest your money correctly, it is impossible to hedge against inflation.
What are the common causes of inflation?
The following are the three causes of inflation in any economy:
- Demand push inflation
The economy is always concerned about the expanding population. When firms fail to raise production to meet current demand for products and services, demand push inflation arises. They raise the prices of their items to keep the issue under control.
- Cost-push inflation
Cost-push inflation occurs when prices rise as a result of increased manufacturing costs. For example, if the price of raw materials rises or you give your employees a higher rate, the cost of making the product climbs dramatically. Businesses raise the price of their products to offset the rising production costs.
- Devaluation
Devaluation-based inflation happens when the value of your country’s currency falls in comparison to other currencies. Devaluation boosts the cost of imports, increasing the expense of consuming exporting goods.
How to Beat Inflation?
Before you go any further, keep in mind that there is no sure way to beat inflation. Even guaranteed-return instruments such as fixed deposits do not guarantee returns that outperform inflation.
This is because the inflation rate and the ROI (Return on Investment) on your investment will determine whether your returns have effectively defeated inflation. In fact, fixed-return instruments rarely deliver returns that outperform inflation. Furthermore, remember the investment thumb rule: the higher the possible reward, the greater the risk.
However, a few investment strategies are popular for potentially outperforming inflation.
- REITS
A real estate investment trust (REIT) is a business that combines money from different investors and invests it in real estate. REIT portfolios often comprise a wide range of properties such as hotels, retail centres, shopping malls, warehouses, and others. The revenue generated by these assets is allocated in proportion to the amount invested.
The concept of REIT investment is still relatively new in India. You should think about the company that is delivering this investment scheme and whether or not the scheme portfolio is diverse.
- Purchase Gold
Gold has long been a popular investment option in India due to its cultural and sentimental value. It is frequently regarded as a safer investment against the stock market’s cyclical and volatility moves. Furthermore, gold investments have consistently outperformed the average inflation rate.
Since India’s independence in 1947, the gold price has increased by more than 60,000%, from Rs. 88.62 per 10 grammes to roughly Rs. 55,000 per 10 grammes, according to a Live Mint story dated 14th August 2022. Here are the several ways to invest in gold:
- Physical gold can be purchased in the form of coins, bars, or jewellery.
- Gold ETFs are open-ended mutual funds that provide exposure to gold without the high transaction costs and security issues associated with real gold.
- Sovereign Gold Bonds (SGBs)- SGBs are government securities issued by the RBI that are denominated in grammes of gold. SGBs, like gold ETFs, are an ideal alternative to actual gold.
- Investing in Inflation-Indexed bonds
The government of India issues inflation-indexed bonds (IIP) with the goal of providing investors with returns that outperform inflation. The RBI, which monitors the bond on behalf of the government, employs an ‘index ratio’ to adjust the principal amount for inflation.
- Peer to peer investing
Peer-to-peer lending, also known as P2P lending, is a form of direct lending where individuals can lend money to others without the involvement of traditional financial institutions. This innovative investment platform like Monexo allows investors to earn attractive returns by directly funding loans for borrowers.
One of the key advantages of peer-to-peer lending as an investment option is its potential to outperform inflation. Unlike traditional savings accounts or fixed-income investments that may struggle to keep up with rising prices, P2P lending offers the opportunity for higher returns that can help investors stay ahead of inflationary pressures.
Additionally, peer-to-peer lending provides diversification benefits to investors’ portfolios. By spreading their investments across multiple loans and borrowers, investors can mitigate risks and potentially enhance their overall returns.
- Rebalance Your Portfolio
Rebalancing your portfolio entails changing the assets in your portfolio in response to long-term market conditions. Volatile inflation rates, financial goals, and a variety of other factors may necessitate portfolio rebalancing.
For example, a portfolio constructed in 2015 that takes into account the economy and inflation rates may not be suitable in 2023. As a result, revisiting your portfolio and making changes only when necessary is an important part of insuring your portfolio against inflation.
Bottom Line
If you do not invest, you are simply allowing inflation to rob you of your hard-earned money. Your money’s value is diminishing by the minute, and you’re doing nothing to stop it. This is why it is critical to invest in products such as peer-to-peer investing, which can outperform inflation by a wide margin.
| Homepage | Click Hear |
