Inflation is the decrease in the purchase power of money. This happens when there is a rise in prices of goods and services. The UN’s department of Economic and Social Affair, in its World Economic Situation and Prospects Report as of mid-2022, said that inflation is projected to reach 6.7% in 2022. This is twice the average of 2.9% during 2010-2020. A sharp rise in energy and food prices is expected. It is quite a cause of concern for investors in the mutual fund for the real value of returns may also deplete with time.
This is since a gradual increase in the prices of goods and services may cause a rupee today to buy you more than what it can in future. So, it is vital to assure investments earn inflation-adjusted returns. This means the return rate should beat the inflation rate. This is when an efficient inflation calculator can come in handy.Here’s how.
Inflation Calculator: How Does It Work?
The government aims to control inflation through various Monetary and Fiscal policies. But you must also consider a few personal measures to protect your investments. This will help in assuring a comfortable future despite an increase in living costs. An inflation calculator will help you understand the future value of your investment based on the current inflation rate. Input variables like:
- Current cost
- Inflation rate (PA)
- Period or number of years
Press the ‘calculate’ button to find out the future cost. For instance, if you invest ₹1 lacs at present, the inflation calculator can tell you the value of the same 20 years later after factoring in the ongoing inflation rate in the country. Investors can design their portfolios accordingly for different long-term and short-term goals.
Benefits of an Inflation Calculator
The Ministry of Statistics and Programme Implementation provided data saying that India’s inflation rate climbed to a seven-month high of 6.01% in January 2022 as defined by the Consumer Price Index (CPI). While a small amount of inflation can drive the economy, high inflation can be dangerous. A few timeless ways to protect yourself would be to invest in mutual funds via numerous strategies to avoid falling victim to inflation.
An inflation calculator will help determine the future of your investment. You can get a clear idea of the impact price rise may have on the financial value of your goals. It is a free and accurate tool that generates results within a few seconds. This eliminates the needfor manual efforts and reduces the risks of errors.
How to Beat Inflation with Mutual Funds?
Choose the right mutual funds to invest in as per your goals, expense ratio, risk appetite and fund performances. Now consider diversifying the portfolio by putting your eggs in multiple baskets. It can help offset negative inflation impacts on specific sectors and companies via profits achieved by others from higher prices. You can also consider picking foreign stocks since money placed in these assets can translate into more dollars over time.
The governor of the RBI stated that the inflation rate in January 2022 should not frighten anyone. It is sincethe momentum of inflation from the previous October has had a downward slope for statistical reasons that resulted in higher inflation, especially in Q3. But, before investing in a mutual fund in India, it is a good idea to consider an inflation calculator.