Saving money can be just as challenging as earning it because of inflation. Inflation decreases the value of money over time. So, in the future, you will be able to buy lesser goods with ₹100 than it could fetch you today. Inflation is the gradual price rise of goods and services. Therefore, it is imperative to calculate inflation. You can beat inflation by investing in nippon mutual funds. However, inflation can affect monthly investments. Here’s how:
Impact of inflation on mutual fund investments:
The returns through mutual fund investments don’t matter if there is no correlating inflation figure. For example, your favourite snack costs you ₹40. If 10% is the annual inflation rate, the cost of the same snack will rise at the same rate. You can’t afford the snack unless your monthly income increases by 10%. Therefore, Inflation rates are crucial in calculating the real rate of return. A mutual fund offering an 8% return against a 9% annual inflation rate isn’t helpful. That’s because the real rate of return is -1%. You can compare the different inflation and mutual fund scenarios by typing “inflation calculator India” on the search engine.
How to calculate inflation?
To ascertain the inflation rate, use an online inflation rate calculator. Consider the CPI, i.e., the consumer price index, for calculating inflation. The change in the price of goods in terms of their weighted average is called the consumer price index or CPI. Determine the CPI using this formula:
CPI = (The current cost of goods and services/ the cost of goods and services in the base year) *100
Once you determine the CPI, proceed to calculate the inflation using this formula:
Inflation = ((CPI x+1 – CPIx)/ CPIx)) *100
Don’t feel intimidated by these formulas. Calculating inflation nowadays is easy, thanks to online mutual fund calculators. Now that you know how to calculate inflations, let’s look at a few tips you can follow to protect your wealth to beat inflation:
Consider the capital requirement:
While investing in companies providing high returns is prudent, look at the firm’s capital requirements. During inflation, businesses with low capital needs that maintain their earnings might perform better than ones requiring higher capital investment to maintain their position.
Diversify your investments:
You must diversify your investment portfolio across asset classes because this action can help you mitigate the impact of inflation. Generally, assets like stocks, commodities, inflation-protected bonds, and real estate perform differently under different market conditions, thus reducing the overall volatility of your portfolio.
Invest in Gold:
Another prudent strategy would be investing a part of your corpus in gold because it might maintain its value even during inflation. The gold scarcity and global recognition contribute to retaining purchasing power over time. However, before investing, remember that while gold can function as a hedge against inflation, external factors, like global economic conditions and supply and demand, might influence its value.
These tips should help you protect your wealth against inflation. Just remember to calculate inflation. An inflation calculator is a helpful tool that simplifies the calculation process.
Check out the inflation calculator right here – https://mf.nipponindiaim.com/knowledge-center/tools/inflation-calculator