How can you protect yourself from inflation?

Sep 17

07:08

2008

Aadi Sharma

ow can you protect yourself from inflation Inflation in India is a worrying factor as compared to the general performance of the Indian economy

How can you protect yourself from inflation

Inflation in India is a worrying factor as compared to the general performance of the Indian economy. The inflation rate has spiraled to over 12% in the past few months. The prices of everything from food grains to apartment rentals to gas have sky-rocketed. Rising living costs not only affect your cash flow but also erode your savings considerably. Choose your investments carefully to protect your investment portfolio. A good investment plan should cushion your future consumption from price increase.

Here are some pointers to shield you from inflationary losses.

The first thing to do is to get ready for rising prices by cutting down on your expenses and saving a considerable portion of your annual income. Curtail splurging urges. Don't use your credit cards injudiciously.

Decide on the rate of inflation that you would base your planning on. The Consumer Price index for Urban -Non Manual Employees which is released every month would be a good index to base your projections on. Do a little bit of research to get an idea of the inflationary trend in the coming 6 months. Taking this into consideration your aim would be to invest in instruments which yield a return higher than the rate of inflation. Review and revise the inflation rate that you have assumed every year.

Your best bet would be to invest in assets which pay a variable return. The dividends accruing to investors of equity stock rise with inflation and respond positively. Equity stocks also afford an opportunity for capital appreciation which could be hedged against inflation. Opt out of speculative stocks as the risk percentage is very high. Invest in good stocks that have a good track record and those that will give you the maximum return in the long run. Buy and hold stocks long term as it is a good hedge against inflation.

Another safe option to protect you from the ravages of inflation would be to invest in mutual funds that invest in energy and natural resources based companies, oil and gas companies and companies dealing with precious metals. These companies have a good track record and their value keeps appreciating.

Real Estate prices have appreciated like never before and in par with inflation. So this is one investment where you can never go wrong.

Direct investment in precious metals like gold, silver and platinum is also recommended as these have always been considered safe investments. Gold has appreciated by a whopping 49% in the last one year. Gold coins and biscuits are preferred over jewelry.

Invest in inflation protected bonds /Capital Indexed Bonds where it is available.

Weigh the pros and cons of the various investments and act prudently while taking investment decisions.

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