Ward off inflation with a sound financial plan this Dussehra

  • Posted By : reliancesmartmoney.com
  • Friday Oct 05, 2018

On the auspicious day of Dussehra, Lord Rama killed Ravana and restored peace in the world. The festival symbolizes the victory of good over evil and teaches us to resist evil around us. In this article, let’s discuss how you can combat the scourge of inflation through sound financial planning.

What is inflation?

Inflation is the rate at which the price of goods and services increases over a specified period. Simply put, it means that your cost of living goes up. Here’s a simple way you can understand the impact of inflation on your daily life.

Ask your parents about the prices of regular everyday items when they were young. You will invariably hear statements such as: today, a litre of petrol costs around Rs. 81 but in the year 2000, the same litre of petrol cost you around Rs. 25. Similarly, the price of everything from rice to cars to homes has gone up. This general price rise for all goods and services in a country is known as inflation.

Reasons for Inflation in India

Let us understand the major causes of inflation which are as follows:

inflation vs investment

How does inflation affect saving and investing?

Inflation can affect your savings in a big way. But unfortunately, many people are unaware of its impact. Let’s assume you have created a retirement plan that allows you to live on Rs. 6 lakh per year (or Rs. 50,000 per month). This might seem like a good enough sum right now. But 20 years down the line, this amount could be worth a lot less because of the rise in inflation. For example, coffee that is Rs. 30 today could become Rs. 60 or more during this time. In other words, your cost of living would rise, and the amount you have saved may not be enough to meet your expenses. This is how inflation eats into your savings.

Why is it important to consider inflation before investing?

It is because inflation poses a direct threat to your investments and can chip away returns from your investment and erode the value of your investment capital. It is a major concern for fixed income investors who have a low-risk appetite and expects a stable income stream in the form of interest. However, because the rate of interest remains the same till the maturity period there is no question that the rise in prices will affect the interest rates.

Therefore, before you start investing in a scheme, it is important for you to consider inflation and ensure the scheme you select to invest provide inflation-adjusted returns in future.

How to get better returns during inflation through a sound financial plan?

Most people put their savings in a bank account because it is safe and secure. Let’s, imagine you keep Rs. 100 in your savings bank account. You earn interest at a steady rate of 3.5% per annum on this amount. At the end of the year, your bank balance will show that you have Rs. 103. But if inflation grows at a rate of 5%, you end up losing a portion of your savings. In effect, you have lost Rs. 1.50 to inflation. This can be a big problem over the long term.

The best way to combat inflation is to invest in avenues that offer you much higher returns. Mutual funds are a good option that you can consider. reliancesmartmoney.com offers you a wide range of mutual fund options such as debt funds, hybrid funds, equity funds, sectoral funds and Equity Linked Saving Schemes (ELSS) . It is a one-stop-shop for all your online investment needs. You can also use the RoboAssist tool that provides you with an illustrative investment plan based on your own financial goals.

The rate of return on mutual funds can range anywhere between 10-15% (sometimes it can go even higher). By continually investing in mutual funds through Systematic Investment Plans (SIP), you can steadily build an inflation-beating corpus of wealth.


When it comes to inflation, the first step is to identify your financial goals. They can be short-term goals like going on your dream vacation with your family or long-term goals like retirement planning . Based on these goals, you can invest your money in appropriate funds to help you gain substantial returns during the time. By investing through reliancesmartmoney.com, you can secure your financial independence and earn returns that beat inflation.

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