Hello Readers!!

Inflation is once again trending high in India, which means now you would have to pay more for the same goods you were buying before. Basically, more spends for same goods.

The inflation was trending high throughout the year 2020, this was because the year 2020, witnessed continuous ups and down in Indian economies. However, the last three months proved to be reliving to the people of India, when the inflation went down to its lower rate in a decade.

The smile of low inflation rate over people face was for a very short duration and the inflation is once again the top highlight of the market as it is rising once again. The ongoing global economic events and the dynamic of India’s economy have been taken as the major reasons.

Rising inflation directly hits your pocket, it forces you to cut down your desire expenses, not only that but also you have to trim down your necessary spends. But here the question is, how does rising inflation hit your investment? And what necessary one can do to save their investment in inflationary movements?

Let us have a look!!

Does Inflation Matter For Your Investment?

Well, if you are an investor in mutual funds then you might be knowing that mutual funds are favored more among all securities because it gives inflation-beating returns over longer periods. So, it is advised to include mutual fund investment in your investment portfolio.  

But here the question is, does anyone have any idea how to deal with the short-term fluctuation in inflation rates? If we look at a detailed report on trends of inflation rate for last 30-35 years, you will get to know that annual inflation in India has been 3.5-13.5 percent, which means it’s not a stable figure year on year.

Now the question is how inflation affects the market? Experts say that the high the inflation rate is, the high the interest rate trends. And the high-interest rates result in the falling of Equity markets and debt market or corporate market suffers due to increasing in their cost of capital. At the same time, your bank deposit rates may start to look up in inflationary periods. Well, you might wonder but the opposite of all mentioned above happens in the low inflation period!!

Basically, when people see that their equity investment is suffering due to inflation they decide to switch investments and moving towards fixed deposits, which is clearly not advisable. Instead, investors are requested to focus on the factual side and not get attracted to the picture that is created in front of them.

Do not get attracted to the high-interest rates offered on Fixed deposits, this might be misleading! In the year 2008 when the inflation rate was trending high, to attract the investors more, the SBI offered around 9.5-10%interest rates on Fixed deposits, as a result, people got attracted and moved their investment to fixed deposits, but the real picture was completely different. Investors, though they have saved their money, actually, their investment in fixed deposit lost its value because the inflation was trending more than the interest rate offered. In 2009, it was close to 12 percent. So, it is advisable before you switch clear all the behind-scenes of the picture.

Do not shift all your money from bank fixed deposits to rising asset prices during low inflation! In the last some years inflation was trending than compared to before, as economic growth across large-sized economies has been sub-optimal. As a result, investors got attracted more towards financial and physical assets such as equities and commodities.

Well, this is natural, investors may tempt to move to assets with higher returns, but at the same time, they must keep in mind that while soaring equity market returns might look attractive, in times of low inflation, your money’s worth remains more stable. So basically, unnecessarily you don’t need to bid on risky assets.

Basically, What An investor Must Do? 

While you need to take care of how your investment trends with eth change in inflation rates in the market, at the same time you need to take care that you don’t end up reshuffling your assets unnecessarily in the short-term.

For your long-term investment it is suggested, keep your focus on growth asset choices to save your portfolio returns from the so-called devil, inflation! And for your short-term equity fluctuations, they might get affected due to the high volatility in the interest rates, it is suggested to stick to your long-term allocation rather than switching out during short-term market corrections.

Last but not the least what you have to do is to ignore the impact of short-term rise or fall in inflation rates on your investment portfolio.  

Keep reading for more updates on Mutual Fund Investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).