How Equity Investments Can Help You Beat Inflation?

Nov-21-2018Blog by – Mr. Dhruv AjmeraRead Time: 4 Min.Word Count: 818
108How Equity Investments Can Help You Beat Inflation?
Inflation is very important term when it comes to investments and it is critical that you are aware of the concept and the kind of role it plays in investments. Inflation, in common language, is the rise in the value of goods and services in an economy over a particular period of time. Inflation erodes your income and investments and investors need to be aware of the price movements and how they impact your wealth. News and data on inflation and further analysis of the same from investing point of view is available on the websites of most stock brokers in India. A glance at the same would offer you with the information about what is driving the inflationary trends and how the prices are behaving across the economy.

It is important that while taking any investing decisions, the investors keep their focus on the real return that they generate - by investing their money. This simply means that one has to consider returns net of inflation.  For instance, Rs 100 earned will be worth just Rs 95 after a year if it is not invested and the inflation rate is 5%. Idle funds would not lead to any accretion in wealth for you. That is why it is important to be on the lookout for investments whose returns are more than the inflationary trends.

Investing your money in share markets is an excellent way of beating the inflationary trends as the listed companies’ sales and profits also tend to rise at the same pace or a faster pace. Thus, it makes sense to invest in share of operationally sound companies with a good track record of earnings and a strong potential to grow. Because price levels in general tend to edge higher over a long term, stock market investments have been the most preferred option for investors all over the world to generate wealth and ride over the inflation

India is a developing economy and hence, the inflationary trends are likely to see a continued upward march in coming years. While the quantum of increase in inflation has been moderate in recent years compared what it was around five years ago, rising consumption across the country and recent weakness in Indian Rupee is expected to ensure that inflation continues to stay a critical factor while measuring the performance of your investments

Investing in equities over a long period is one of the best ways to stay ahead of inflation. Over the last 10 years, the Nifty has returned around 12% a year compared to the 5.77% average inflation rate. One can either invest directly or through mutual funds. For small investors, it is advisable to invest through mutual funds, as they are managed by experts. Online investment brokers offer bulk of these services with ease and thanks to the technological advances, investing has become a very easy and user friendly activity now.

Diversified equity mutual funds can also help in earning higher risk-adjusted returns provided you have a sizably long investing horizon. For investors who are rather risk averse and do not want to allocate all of their funds into investing at one time, systematic investment plans or SIPs are a perfect solution. The compounding impact of such investments over long periods will help investors beat inflation and would lead to steady growth in their wealth. Another good way of staying ahead of inflation is buying stocks of the companies that pay good dividends

Summing Up

The International Monetary Fund (IMF) recently called for further tightening of monetary policy in India to anchor expectations as inflation was expected to pick up. The fund maintained India’s growth projection at 7.3% for 2018-19. The IMF estimates inflation in India to rise from 3.6% in 2017-18 to 4.7% in 2018-19 amid accelerating demand and rising fuel prices. It said core inflation, excluding all food and energy items, in India had risen to about 6% as a result of a narrowing output gap and pass-through effects of higher energy prices and exchange rate depreciation

While the IMF figures indicate that inflationary trends would still be moderate compared to near double digit spurts witnessed around five years ago, soaring global crude oil prices, the rupee depreciation and the impact of the recent seventh pay commission could still keep prices on a gradually upward trajectory. In a developing economy like India, inflation anyways can’t be expected to stay abysmally low for an extended period of time. Keep a close watch on it and get ready to beat it via the equities

Keep in mind that the risks of not investing in the stock market are even greater than the risks of investing. As the legendry investment guru Warren Buffett has noted, inflation is the real threat to your savings and stock market investments are best placed to deliver inflation-beating returns on a consistent basis over a long period of time.

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