What is Inflation and what are the ways to beat Inflation?

2 min read

In this article, we will be discussing inflation and how one can beat inflation. So, let’s get started.

What is Inflation?

  • Generally, Inflation refers to the general rise in the price of goods and services. The increasing price of goods and services leads to a fall in the purchasing power of individuals.
  • Due to increasing prices of goods and services and falling purchasing power, the wealth of the individual also erodes with a period.
  • As per the data of Income Tax of the Government of India, the Cost Inflation Index (CII) of India was at 100 in the year 2001, which has now risen to 331 in the year 2022 indicating that Rs. 100 in 2001 is now values around Rs. 30.

3 Factors to Beat Inflation:

1) Time:

  • Having a mindset of beating inflation in the 6 months to 1 year is quite a tough call as the impact of inflation is visible for a longer period only except for some significant spurt in some cases.

2) Corpus/Wealth:

  • Generally, people think that they are beating inflation after allocating some amount of money in the market and generating an average return of around 15%, but it is not the case.
  • One should have a thought process of giving a viewpoint from Net Worth including all the investments in the asset classes. The total net worth of an individual should possess the capability to beat inflation and not a particular investment class.

3) Returns:

  • Here, the simple rule is that our returns from the investment class should always be higher than the investments made.
  • For achieving this, individuals should have the correct right risk-return model and should have invested in the right asset class.

What Should Investors Do?

An Investor to beat inflation and generate returns of more than 7% post-tax depending upon the risk profile of the investors. Hence, investors should keenly focus on the 3 factors to beat inflation. An individual should have good diversification with proper asset allocation and follow due diligence before making an investment decision.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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