Inflation and Investments

 Since each year's inflation is in addition to the previous year's inflation, this means that the effect is similar to that of compound interest. Imagine a situation where you invest Rs 1 lakh of your money in a deposit that earns you 8 percent a year. At the same time,  prices usually increase by 8 percent per year. In such a situation, your compound returns will  keep pace with  inflation.The actual amount will increase, but what you can do with it online will not increase. For example, for  ten years your Rs.1 lakh becomes Rs.16 lakh. 

At the same time,  the things you could have bought for Rs on average.1 lakh  also costs Rs.16 lakh. In fact, the purchasing power of your Rs.1 lakh is not what it was ten years ago. Increasing the amount of money you have is just an illusion and is completely denied. for the corresponding price increase.But inflation may not be  kind enough to keep up with the interest you earn. What if there are more? And if it goes on like this for a  long time? twenty years pass? Your investment would grow to Rs.66 lakh but things that used to cost Rs.1 lakh would now cost Rs.72 lakh. Now the purchasing power of his Rs.1 lakh is only Rs.15.000.The common problem is the inability to account for inflation. People think in nominal terms, and the future impact of inflation is awfully hard to fathom. 

The real solution to this is that we should become a low-inflation economy, but since that is clearly not on the agenda, savers should always be mentally prepared for inflation. That's a depressingly large amount, but there it is, there's no getting around the arithmetic. What this is really telling you is that  you need a way to achieve this for a long timeThis capital is risky, they convey it to all investors. However, it only takes  a little thought to realize that inflation is riskier. it increases with inflation anyway. This is not difficult as the value of goods, services and assets in the economy is inherently inflation-linked, i.e. adjusted for inflation.