How to “inflation-proof” your savings – Forbes Advisor INDIA

Inflation can be simply defined as the increase in the prices of everyday basic products and the consequent devaluation of the currency. Indian inflation has unduly affected the cost of basic services such as cooking oil, crude oil and vegetables.

Alarmingly high inflation rates have exceeded the estimates provided by the Reserve Bank of India (RBI) in September 2021. The central bank of India recorded an inflation rate of 4.35%, while in January In 2022 inflation reached an all-time high of 6.1%. In the month of March 2022, Indian retail inflation spiked to 6.95%, crossing the 6% upper limit set by the RBI for the 2022-23 fiscal year.

In a country that invests mainly in traditional rupee-driven investments such as fixed-term deposits (FDs), public provident funds (PPFs) and gold, rising inflation is an acute problem that requires a well-thought-out financial strategy with the intent to deviate from the norm.

Our savings are constantly affected by forces beyond our control. Recent world events—the war between Russia and Ukraine and the resurgence of COVID-19—show that inflation is an uninvited guest here to stay. These international events have not only drastically impacted long-term investments and threatened our savings fund, but have also increased the average cost of living in India.

However, not all investments have to be vulnerable to market fluctuations. So while we all know what inflation is and what it does, the real question to ask is where you should keep your money to protect it from the invasive effects of inflation on your long-term wealth and savings.

How can the average Indian investor beat inflation?

‘In our time, we could buy vegetables for a month for less than 100 rupees.’ Our parents and grandparents are eternally confused by rising prices. The only constant here is that money earned is a depreciating asset in today’s economy, and the biggest lesson to be learned lies in investing. It seems that the only way to combat or beat rising rates of inflation is to invest wisely.

Investors find it difficult to assess which investment opportunities may bring them higher returns in the face of rising inflation. But why is today’s high inflation a cause for concern for investors seeking long-term financial goals?

Inflation has the power to turn positive returns into negative ones. Consider the prevailing inflation rate of 6%, while most banks in India offer interest rates of 2% to 5% on fixed deposits.

This disparity between inflation and returns reduces your future purchasing power and destroys your long-term savings.

It may help to remember that there is no surefire way to beat inflation, but there are multiple strategies that can help lessen the negative impact of rising inflation on your investment portfolio and wealth-building plan.

Budgeting Can Help Beat Inflation: Manage Your Expenses

The rapidly rising prices in our economy can be a reality check for thousands of Indians reeling from money management. Before you start investing through SIPs or your hard-earned lump sum to combat inflation, it’s important to take stock of your spending habits.

More importantly, it is important to start budgeting and adjust your spending plans according to the prices of goods and services in the market. There are simple ways to achieve this:

  • Track your daily expenses
  • Get creative with your everyday spending
  • Look for cheaper alternatives for appliances and clothes.
  • Cut back on eating out or cancel the Netflix subscription you rarely use.

These seemingly insignificant costs that provide instant gratification, once controlled, can help you save in the long run and develop a smarter money control strategy.

Budgeting helps you outline a future retirement plan and analyze your future financial goals, and therefore, in real time, helps reduce the impact of rising costs on your income.

Invest for the long term

If you have the purchasing power to keep your money for a long period of time, long-term investment options may be exactly what you need. Stocks, bonds, and stock funds can potentially offer substantial returns on your initial investment. These are powered by the compounding principle and can easily add increasing value to your invested sum. However, not all long-term investments can make you a millionaire. With investments that present higher risks and little collateral, consulting a professional and evaluating your financial goals is a must!

Look beyond PPFs and FDs

To ensure long-term financial stability and security, you need to send your money to work. Savings through PPF and FD are safe, but are they enough to beat inflation?

Historically shown, FDs are not a way to build wealth, nor do they protect the average investor from inflation. The sad truth is that if your interest rate is lower than the country’s average inflation rate, then your purchasing power will be compromised and your investments will likely go to waste.

Beating inflation requires looking beyond PPFs and FDs as investment options: You should invest in stocks, mutual funds, real estate, gold, and exchange-traded funds (ETFs) to ensure you stay ahead.


Gold, historically, has been a beloved investment option for Indians. It is also a good deterrent against inflation. The yellow metal has seen a steady rise in value during tough times, the price of gold rose during Covid-19, making it the perfect investment asset.

In addition to the commonly invested physical gold, investors can also explore options such as digital gold, gold ETFs, and sovereign gold bonds, as well as silver to store their wealth.

Real estate

Another investment option historically validated against the Indians is real estate. Real estate often acts as a hedge against inflation and allows owners and lessors to increase the value of their tangible assets, as well as rents, respectively.

There are two ways to invest in real estate: directly by purchasing a property or indirectly through real estate investment trusts (REITs). The latter is also an opportunity for small and medium investors to participate in the commercial real estate market.

Mutual funds and ETFs

Mutual funds and ETFs can be quite helpful in inflation-proofing your savings. Mutual funds and ETFs offer returns above the prevailing rate of inflation. However, they can be volatile in nature and offer higher risks. Mutual funds and ETFs are viable investment options available to new investors and allow you to invest in lump sums or through a SIP.

Highly liquid in nature, so if you have money nestled in your accounts that has no real use, starting a SIP as low as INR 500 can help keep you financially secure in the near future. Try to be mindful of your investments, if you are just starting out don’t hesitate to seek professional help.

Bottom line

The impact of inflation on the economy is never uniform but recurrent. Inflation is not likely to go away and relying on traditional forms of savings and investment will not be sustainable in the long run, especially with the ever-increasing demands and needs of our families and children.

To ensure you have the financial potential to afford the necessities and enjoy the luxuries of the modern world, it’s crucial that you embrace change and become more financially literate to save your hard-earned money.

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