Inflation and Beating It


Heard it too many times. Know what it is but just cant define it in Words huh...., Well Let me first try to explain it to you in very General terms it means

"" A rise in the Cost of Living"".

See You already knew that but in more technical terms it is defined as

"" An Increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a Rupee, making it worth less.""

How does inflation effect you?... Well Simply said, When Ever you go out to buy your household grocery and you find out the rates have been increased, you know it is high inflation rate. For that sake even whenever you fill fuel in your Car and the rates have risen you have just been stricken by a high inflation rate.

Those of us living on fixed salaries are usually the most effected by inflation, since although your monthly intake remains the same, your expenditures rise and hence directly effecting your household budget and savings.

How do you calculate Inflation? Well thats a somewhat complicated process and i will not go into the details of the same it has something to do with Consumer Price index "Something like Calculating how much an Apple Cost in XXXX year compared to how much it costs now". I guess you get the idea. The Formula for Calculating the Inflation rate is something like this :


where B stands for Current Index and A stands for last Years Index.

Inflation is one of the main reasons why the Consumer Debt market is at an all time high. The same reasons we see all those farmers doing suicide in some parts of the country, since they cant afford to buy anything and they end up taking loan and then cant repay the loan. Its a sad story.

Beating Inflation

Whenever we are about to make some fresh investment or even reviewing our existing investments, we need to keep two thing in mind during these high inflation times

1. The possibility of getting higher interest rates.

2. The devaluation of the Rupee.

To beat inflation we should avoid investing in fixed deposits and relief bonds. Also try to avoid any debt fund(Any investment pool in which the focus is on fixed income investments, the main objective being preservation of the Capital) that has a long term.

Try investing in the following : -

1. Property : The star Performer, 9/10 times usually property bought with sound research will give better return then any other investment type.

2. Short term deposits : These can provide the much needed liquidity for you money in the times of inflation, also you always have the option of reinvesting the money in a better return giving investments.

3. The Stock Market : A Careful investment with a great deal of research usually gives very good returns. The last three year returns from the sensex alone are proof enough of the value that this kind of investment can give you.

4. Commodity trading : I am not very much aware of how this functions but the people i know who do invest in commodity trading are usually earing well, especially with inflation always on the rise.

In Conclusion, i can just say that diversify your portfolio, keep it balanced and always take into account what are your needs and aspirations are.

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