When the prices of goods and services rise, it is called inflation which is expressed as a percentage. It causes the purchasing power of a rupee to go down.
The Consumer Price Index (CPI) is now used to measure (retail) inflation in India. This price index is determined in percentage based on the change in prices of 299 services and goods by taking their weighted average value over a certain period.
CPI = (Cost of the fixed basket of commodities and services in the present Year/ Cost of the fixed basket of services and commodities in the base year) * 100
An inflation calculator tells you the worth of an amount of money after a specific period and in the scenario where it is invested.
How Can You Beat Inflation in India?
You beat inflation when the returns earned from an investment are higher compared to the inflation rate in the economy. The best way to do it is to invest in products or things having a higher chance to equal or exceed the rate of inflation tomorrow.
One of the investment options to beat inflation is an exchange-traded fund (ETF). Such a kind of fund contains an index like Nifty 50 (in India). It holds various underlying assets (like money market instruments, foreign currency, commodities, bonds, stocks or any other securities) instead of only one as in the case of a stock. Therefore, ETFs offer a popular choice to diversify your investment portfolio. Since it's always best not to put all your eggs in one basket, ETFs therefore can help you withstand market inflation.
Benefits of Investing in Exchange Traded Funds
Here are some of the top advantages of investing in ETFs:
- Low cost:
- It is affordable to invest in ETFs since they come with a low expense ratio.
- Tax benefits:
- When you purchase and sell these funds in the open market (stock exchange), it does not affect an ETF's tax obligation. This is a great tax advantage.
- Exposure:
- ETFs provide diverse exposure to a certain sector depending on the type of ETF chosen. You can choose from index ETFs, gold ETFs, leveraged ETFs, bond ETFs, sector ETFs and currency ETFs to invest in.
- Liquidity:
You can buy and sell exchange-traded funds anytime throughout the trading period to enjoy enough liquidity.
- Transparency:
You can get high transparency with these kinds of funds since the investment holdings are published daily.
- Good returns:
When an ETF is invested in large-cap firms that grow more rapidly than the economy, you can earn returns higher than the market inflation rate. You can rely on these funds to offer substantial gains and outsmart inflation in the medium to long term of the investment.
Before picking an investment option, make sure to revise your financial goals, risk appetite, current income and projected yearly increase in your salary. To diversify your portfolio further, if you also wish to invest in mutual funds, consider checking the latest NAV (net asset value) of the top-performing ones before you put money in any of them.
