Ways To Beat Inflation?

Inflation diminishes the purchasing power of the currency. It affects everybody badly since we have to shell out more amount money for purchasing the same amount of product/services. Salaried class is not much affected by the inflation since their salaries are sensitive to inflationary trends. Similarly people running business or profession are also least affected as they can always raise rates, fees, prices along with the costs of operating their business or profession. But the fixed income earners, whose only source of income is their investment, bear the brunt of high inflation. In the recent times of high inflation which is well over 7% p.a. it becomes all the more important for such people to earn more than the rate of inflation so as to earn positive real income. For that one has take smart investment decisions.

Here are some smart investment strategies to tackle inflation:

1. Park your money in Real Estate at the earliest.

If you don’t have your own house then you should buy that at the earliest. It should be kept in mind that everything appreciates except the value of rupee. I you buy the house you need in time, you are automatically hedged against inflation. The value of house/real estate appreciates more than your fixed deposits. So the value of the house you purchased today would be much more than the value of your fixed deposits say a ten years from now. If you delay your decision to buy your house, you will have shell out far more amount of money afterwards.

As an investment also real estate is better than most other investments. You can easily earn handsome amount of rents which are also subject to inflationary pressures. You can raise your rental earnings when the cost of living goes up everywhere.

2. Invest in Higher Interest Instruments.

During the periods of high inflation it is best to keep your money in fixed deposits having short maturity period. Since higher inflation rates are often followed by higher interest rates, it is better to keep all your options open at this time. You can invest in company deposits which gives higher interest rates than bank deposits. But remember this instrument is quite risky so invest only with those companies that have clear track record of repayment. Alternatively you can invest in Fixed Maturity Plans (FMP) offered by mutual funds from time to time. They usually generate better returns than bank FD.

3. Invest in Equities and Mutual Funds.

It has been established by various studies that equities generate superior real returns over the long-term vis-à-vis any other asset class. So equities should be a part of everyone’s portfolio. If you have time at your disposal, you can invest directly in the stock market after doing proper research on your own. If you don’t have time to track the performance of your stocks regularly, you can go for a diversified equity mutual fund with proven track record. You can also go for a balanced mutual fund if your risk appetite is low.

4. Invest in Gold

Gold has always proved to be a good hedge against inflation since time immemorial. You can invest in gold in the form of bullion, bars, coins or jewellery. Now you can also invest in gold through exchange traded funds investing in gold.