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| Equity Investments - Your Best Hedge Against Inflation. |
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 | Inflation is a silent killer |
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| A killer of your savings. Imagine that you have Rs. 10,000 today and it is worth your monthly household budget. Hoard this money into your bank locker and the value of your hard earned money will be: |
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Inflation rates
after years |
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@ 5 % |
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@ 7.5% |
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@ 10 % |
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@ 15% |
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| 1 |
|
9524 |
|
9303 |
|
9091 |
|
8696 |
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| 5 |
|
7835 |
|
7218 |
|
6209 |
|
4972 |
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| 10 |
|
6139 |
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4858 |
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3855 |
|
2472 |
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| 15 |
|
4810 |
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3388 |
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2394 |
|
1229 |
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| 20 |
|
3769 |
|
2365 |
|
1486 |
|
611 |
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| 25 |
|
2953 |
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1651 |
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923 |
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304 |
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| Astonished… That's not just the only thing to be astonished. Your monthly budget of Rs. 10,000 will shoot up to: |
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Inflation rates
after years |
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@ 5 % |
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@ 7.5% |
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@ 10 % |
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@ 15% |
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| 1 |
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10500 |
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10750 |
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11000 |
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11500 |
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| 5 |
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12763 |
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14360 |
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16105 |
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20114 |
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| 10 |
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12289 |
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20630 |
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25937 |
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40456 |
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| 15 |
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20789 |
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29610 |
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41772 |
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81371 |
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| 20 |
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26533 |
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42650 |
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67275 |
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163665 |
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| 25 |
|
33864 |
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61380 |
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108347 |
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329190 |
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| The power of inflation |
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| It can wreck havoc with not only your monthly budget but also with wealth of your lifetime savings. If you need pension of Rs. 33,864/- per month (current Rs. 10,000/- inflated @ 5% p.a) after 25 years and your savings are expected to grow at 5% p.a after retirement, then your savings need to be Rs. 81,27,360/-. If you save through equity funds and they are assumed to grow at 12% p.a, then you need to save Rs. 4,283/- per month and if you save in conservative debt instruments assuming rate of 6% p.a then you need to save Rs. 11,670/- per month (please note that further inflation is not taken into account). However if you do not wish to pass on your savings to your children and you expect to give another 25 years then you need to save Rs. 3,056/- p.m (assuming rate of 12% p.a) & Rs. 8,328/- p.m (assuming rate of 6% p.a). Again inflation from your retirement age is not considered nor has any provision been made for any extra expenses like medical. |
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| Is it not better to invest? What is the best option to negate the effect of inflation? |
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| Empirical rate shows that equities are the best hedge against inflation. A lumpsum amount might not be advisable, but to negate inflation, investing regularly and systematically is highly recommended. |
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