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Inflation, simply a term used to describe or measure the continuous rise in prices for goods and services that affects all areas of the economy. News is that inflation is again surging and this time, not only in the domestic economy but globally. Recently we saw a hike in petrol, oil, and commodity prices. This shows that the inflation surge is not far away.

The rise in inflation is a sensitive cause that needs to be in regular check and thus Central banks worldwide, including the RBI, are expected to take monetary measures to keep inflation in check. Similarly, being an investor, it is your prime duty to analyze that whether your investment portfolio and your wealth corpus, are protected against rising inflation.

Well, you should know that inflation has full potential to eat up your savings and investments, thus it is much necessary for an investor to keep their portfolio inflation-proof or to minimize the impact of inflation on their investments.  

Here are certain steps you can take to do so, just revise your asset allocation strategy and see if your portfolio needs a reallocation to not only protect the portfolio but also gain during inflationary times.

Equity Mutual Fund, All Time Inflation Beater!

Equity mutual funds are favored because they have outperformed other asset classes and generated inflation-beating returns over long-term investing. It is advised to retail investors that if you want to take short inequities they take the route of mutual fund investing that too via SIP (systematic investment plan) for long-term.

Therefore, we advise that before the inflation takes the surge, visit your portfolio, add some equity exposure to it, for this go adding few consistently performing equity mutual fund schemes linked to your long-term goals. Do not forget to diversify your equity fund portfolio across different market caps and sectors, but with proper strategy.

For those who prefer taking part in equity growth by investing in the stock market, I would like to suggest you, do not wait for a market dip. ‘Now is the right time to take part in market investment. Remember at what time you invest is not responsible for creating wealth, instead of how long you invest is!

Stock markets do not travel in a linear route and there can be several dips and spikes over a long period. You can use a dip in the markets to add more money to your portfolio but it is just not worth waiting for a market dip to start investing.

Gold, Another Way To Deal With Rising Inflation!

Gold is another option that an investor can add to their portfolio to deal with rising inflation because, in times of rising inflation, gold prices tend to rise sharply. Experts say at least 10% of portfolio exposure to gold can be considered by the investors to deal with rising inflation. Here the investment in gold refers to gold bonds or sovereign gold bonds and not to physical gold (the yellow metal).  

Can Debt Funds Help Deal Inflation?

Bond prices are inversely proportional to the movement of interest rates and interest rates are directly proportional to inflation. That means when inflation rises, interest rates move up, making the bond prices fall.

This is because new investors dump existing bonds carrying low coupon rates in anticipation of new securities that come with a higher rate of interest. So, if there is an expectation of rising rates (because of inflation), bond prices fall and so do the NAVs of debt funds.

When inflation rises, rises the interest rate despite RBI’s effort to keep it low, resulting in the bond yields increase and prices fall. During this time, investing in debt funds with a lower maturity period helps rather than buying long-dated debt funds. Thus, investors must pick up short-term or medium-term debt funds rather than debt funds with longer maturities, for their debt part allocation in the portfolio.

Last but not the least, rising inflation has the full potential to eat up your saving and investments if not protected against inflation at right time. So, before inflation decides whether it is transitory or permanent in the economy, reallocate your assets and create a shield for your investment portfolio against rising inflation!

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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).