Constantly increasing prices affecting your lifestyle and consumption? You are not the only one affected by this cloud of persistent price rise, commonly known as inflation. Here is the silver lining – we present you some basic tips to handle the problem in the current economic conditions:
1) Budget and make provisions - It is time to revisit the monthly expenditure schedule over a 12 month period. Take all major one-time expenses (vacation, festivities, some major consumption planned) into account, space them over time, and start making provisions for them now.
2) Calculate Real Savings - Revisit regular monthly expenditures, as what you have left after deducting it from your income determines your savings. Rs.100 left in the pocket over the year (with 8% inflation) becomes Rs.92 only. Rs.100 in the bank with 6% interest becomes Rs.97.52 only. So, you need to save in schemes that give you returns high enough to cover inflation. Add tax to the picture, and the required rate of return is higher!
3) Inflation Indexed Bonds - A good option of saving is Inflation Indexed Bonds (IIBs). These bonds protect the principal amount with an inflation index, with interest earnings on the adjusted principal. Thus, total return is much higher than the nominal rate of returns promised.
4) Debt funds, including Fixed Maturity Plans (FMPs), and debt-oriented hybrid schemes – these are eligible for indexation benefit under tax rules, that allow investors to adjust the cost of an asset to the inflation during the holding period. Thus under such schemes, one may avoid paying pay taxes on Capital Gains.
5)Long Term Equity Investment - Plan for the longer run and invest in equities for long periods. Over the last 10 years, the Nifty has returned 16.7% a year, that more than covers inflation and tax deductions over the period. Such investments are a better bet for old-age security. A work of caution – select stocks carefully, Blue chip companies are recommended.
6) Invest in high Dividend Yield companies - Investing in stocks not to make capital gains by selling on price appreciation, but for the dividends they pay over the year is another good option. Dividing total dividends earned by the stock price gives the Dividend Yield (DY). One can plan to maintain a DY higher than inflation rates.
7) Commodity Futures - Speculating on Gold or Real Estate is very popular but almost done and dusted. Also the amount needed for these investments is quite high. Investing in commodity futures is a better bet. The National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange of India (MCX) etc offer such options. One can also invest through reputed online traders or banks in commodity futures.
Top choice - Peer to Peer Lending – while this is a new concept in India, this has grown tremendously in many countries. Using an online platform you can eliminate the middle organization and get higher returns than investing in banks. This method of lending not only beats inflation but even post tax, gives high returns. Faircent, a leading player in this emerging industry also conducts background checks to ensure only verified borrowers get registered on their platform, adding more security for your funds.