REAL ESTATES FORUM

Invest in property, hedge inflation risk

Inflation has touched high levels. It soared past the seven percent
mark pulling up with it prices of food, essential

commodities and manufactured goods.

What is inflation?

Inflation is defined as a persistent increase in the level of consumer
prices or a constant decline in the purchasing

power of money, caused by an increase in available currency and credit
beyond the proportion of available goods

and services. A general upward price movement of goods and services is
noticed in such an economy.

In this scenario, the price of money is seen going down. The reason
can be the creation and circulation of excess

money in the system. The Reserve Bank of India (RBI) tries to bridle
in inflation by resorting to monetary measures

like hike in interest rate or tighten money supply through a hike in
the cash reserve ratio (CRR).

Investments in debt

Debt or fixed income instruments seek to preserve capital and provide
relatively small returns. These are low-risk,

low-return investments. In an inflationary economy, investment in debt
may not work out to be feasible.

Suppose there is an instrument that yields four percent returns and
the lock-in period is five years. If inflation is

marching up with leaps and bounds, the value or purchasing power of
money will come down in these five years. In

order to beat inflation, the returns have to be greater than the
meager four percent.
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