Inflation and Your Savings and Investment

Rising prices of goods and services reduce the purchasing power of your currency. This reduction in the purchasing capacity of the currency is called inflation. Simply put, every rupee today will buy you fewer goods or services than it did last year, thanks to inflation. So, you may pay Rs. 10 for a cup of tea today, which was available for Rs. 5 a few years ago.

Inflation dents the intrinsic value of money over time. If your monthly expense is Rs.50,000 today, it will cost you more to maintain the same lifestyle next year, depending on the inflation rate. You may have to:

• Spend more to maintain the same lifestyle
• Buy fewer goods and services if your budget remains the same

Inflation leads to increased costs of goods and services and also deteriorates the value of your savings and investments over time. That’s why, it is important to invest in instruments that can beat inflation and grow your money in real terms.

How inflation takes a toll on savings and investment

Let’s say, you have Rs. 10,000, and you earns a 5% interest rate on it. After a year, you will have Rs.10,500 in your bank account.

Now, let’s say the inflation rose by 7% during the year. So, a product that was priced at Rs.10,000 earlier will now cost you Rs. 10,700 the next year. So, effectively, when your investment is growing at 5%, the prices are rising by 7%. It means that while the nominal value of your investment is increasing, in real terms, you are earning negative interest. Thus, unless you choose the right investment products that can beat the impact of inflation and earn in real terms, your savings and investments will be washed off by inflation.

Let’s see how you can protect your savings and investment from inflation

Several investment avenues are available in India such as stocks, bonds, mutual funds, gold, real estate, and more.

If you are new to investing, you may opt for investment options such as mutual funds as they come with professional expertise.

Also, you don’t need to invest a lot of money at once. There are 2 ways to invest in a mutual fund, lumpsum and systematic investment plan (SIP). Lumpsum refers to investing in a fund in one go. SIP refers to investing a fixed sum at periodic intervals. One can start SIP with as little as Rs. 100 or 500. Within mutual funds, there are several types such as Equity Funds, Balanced Funds, Gilt Funds, Debt Funds, and more. You can choose to invest in them based on your risk appetite.

Bear in mind that the returns from stocks, bonds, and mutual funds would be subject to market conditions.

Saving and investing smartly could be one way to beat inflation in the long run.

* Please note that not all mutual funds schemes offered by Axis Mutual Fund have this SIP feature of investment as small as Rs. 100. For complete information refer Key Information Memorandum (KIM) or Scheme Information Document (SID) of respective mutual fund schemes uploaded on the website /

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.

While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.