Inflation doesn’t always take us up with it, does it? Well, if you are wondering what inflation really is, here is something that you would have to know. Here is a detailed explanation of inflation.
What is Inflation?
Inflation is known as the increase in prices that results in a loss of buying power over time. The average price shoot up of a basket of selected goods and services over time can show the rate at which buying power declines. The increase in prices, which is often expressed as a percentage, means that a unit of currency buys less than it did previously. Inflation can be contrasted with deflation, which happens when prices drop and buying power increases.
Now that you know what inflation is, can we go on? When the economy does go higher and higher – do you think you could keep up with that pace? If you are self-doubting, don’t worry. There are ways for that. The best way would be through investments. This post is going to talk about a segment of investments too, and that segment is – mutual funds.
To counterbalance the inflationary decline in purchasing power and thus savings, one must choose investment options that have the potential to provide a significantly larger return. Investing in stock mutual funds for the long run is one of the finest ways to battle the inflation monster.
So, what’s the wait for – let’s keep going. But before that – let’s get the foundation straight, shall we?
Read: The Cheapest Way To Live On Your Own
What is Mutual Fund Investments?
A mutual fund scheme is a pool of money that is professionally managed by a Fund Manager.
It is a firm that collects money from a group of individuals with similar financial goals and invests it in bonds, stocks, money market instruments, and/or other securities. After deducting appropriate expenses and taxes, the income/profits generated by this collective investment are dispersed proportionately among the investors by determining a scheme’s “Net Asset Value” or NAV. Simply put – a Mutual Fund is a collection of money contributed by a large number of people.
Now, if you must, no mutual funds are of various kinds out there – and they are all listed here for you.
Types of Mutual Funds
Here is a list that you can never overlook:
These are the two main categories –
- Open-ended funds
- Close-ended funds
Apart from them, here are some kinds of mutual funds that you would have to know –
- Equity or growth schemes
- Sector-specific funds
- Index funds
- Tax saving funds
- Money market funds or liquid funds
- Fixed income or debt mutual funds
- Balanced funds
- Monthly Income Plans
- Hybrid Funds
- Gilt funds
- Overnight Funds
These funds are then further divided into small-cap, mid-cap, and large-cap. Just make it more clear, here is the list of 10 best mid-cap mutual funds in India:
- PGIM India Midcap Opportunities Fund Direct-Growth
- SBI Magnum Midcap Fund
- Mirae Asset Midcap Fund
- Quant Mid Cap Fund
- Axis Midcap Fund
- Edelweiss Mid Cap Fund
- UTI Mid Cap Fund
- Baroda BNP Paribas Midcap Fund
- Kotak Emerging Equity Fund
- Invesco India Mid Cap Fund
Now – coming to the major part of it – how do mutual funds help you beat inflation?
Read: Your Guide To Different Credit Cards And How They Benefit
How Do Mutual Funds Help You Beat Inflation?
Building a portfolio of mutual funds and exchange-traded funds (ETFs) is similar to building a house. There are various approaches that could be taken for this. Individuals have favorite strategies, designs, tools, and building materials.
Finally, all structures have some basic properties and perform similarly.
To create a mutual fund portfolio that can grow your money, you must go beyond the common sense suggestion of not putting all of your eggs in one basket. A well-thought-out design and a robust foundation are required for a long-lasting structure.
You’ll also need a simple mix of mutual funds and exchange-traded funds that works well for your situation. In this context, “simple” refers to a few complementary funds rather than a huge number of essentially similar funds.
Diversification with mutual funds (MF) and exchange-traded funds (ETFs) entails more than just putting your eggs in different baskets. Many investors believe that investing in many mutual funds leads to a more diversified portfolio. However, “diverse” may not always imply “distinctive.” Check to see if you have exposure to a variety of mutual funds and exchange-traded products.
Typically, interest rates grow in lockstep with inflation. Bonds may lose value as inflation rises because bond prices move in the opposite direction of interest rates. When inflation is growing, there are options for investing in bonds, bond funds, and exchange-traded funds (ETFs).
Finally,
Inflation is the greatest threat to the returns provided by any type of investment. It is preferable for real returns (returns less inflation) to be positive rather than zero or negative. In the long run, equity has one of the best chances of outperforming inflation. Because of the risk of capital loss, investors are moving away from stock. However, it is more vital to be farsighted than nearsighted while following the stock market over a 5-10 year horizon than on a daily basis. Over time, the volatility of equities returns is greatly decreased.
Mutual funds and exchange-traded funds are excellent methods for most investors to beat inflation. Stock funds can deliver higher long-term returns because they frequently outpace inflation. They do, however, pose a higher risk of principal loss than bonds or bond funds.
Heads Up – Always make decisions based on your risk appetite; though the risks are not that big on mutual funds, they still exist. So, you might want to keep in mind all of these elements before you can get started with this journey.
Conclusion
Investing of any kind could help you beat inflation since you would be seeing your money grow. But, you may wonder why mutual funds – well, mutual funds can get you through this because they start from a small amount and have different variations to help you out on another level of finances.