The biggest challenge before investors of almost all investment instruments is to beat inflation. Whether it is a fixed income instrument like a bank FD or an investment medium like mutual funds, shares or bonds, the biggest goal of every investor is that his returns exceed the inflation rate. At present, the retail inflation rate in the country is above the target of RBI. Retail inflation had come down to 5.59 per cent in July. But it had increased in the last two months. In such a situation, now you can guess that what will the investors of five to six percent interest rate on bank FDs do? Let us know what kind of investment strategy you should adopt as an investor to beat inflation.
Will focus on real returns
Actual return means the rate of return on your investment minus the inflation rate. For example, if your bank FD is paying an interest of 6 percent, then after subtracting the retail inflation rate of 5.59 percent, your return becomes .1 percent. If you are getting 4 per cent return on your savings account, then it becomes negative after adjusting for inflation. So always keep in mind that what is the actual return you are getting.
Start early and invest consistently
The sooner you start, the easier it will be for you to reach your investment goals. Starting early and investing consistently can make a small corpus a huge corpus. If invested in a disciplined manner over a long period of time in Equity Mutual Funds, a huge amount can be created over a long period of time.
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Link your portfolio to your risk profile
Before investing an investor has to consider how much risk he can take or to what extent he can continue investing by taking risk. It is not necessary that the strategy which is working for one investor will be equally effective for another investor. Because not every investor has the same risk profile. The investor has to take the risk based on his age, income and financial responsibilities. Therefore, he has to decide the extent to which he can tolerate volatility in risk or return.
(Article :Sorbh Gupta)