According to investment experts, if the rate of inflation remains around 7 per cent for long-term, PPF or FD investments might not provide you with desirable returns as inflation will eat away your savings.
New Delhi: When it comes to investment, a lot of people in the country often prefer conservative investment instruments which are risk-averse and offer guaranteed returns. A majority of people often prefer the Public Provident Fund (PF) or fixed deposits (FD) for long-term investment. However, despite offering assured returns, are these instruments a better option to beat inflation.
It may be noted that the inflation rate is at 7 per cent at the moment. While PPF is currently offering 8 per cent interest, FDs on the other hand, are offering interest rate between 5% and 8%. According to investment experts, if the rate of inflation remains around 7 per cent for long-term, PPF or FD investments might not be able to provide you desirable returns as inflation will eat away most of your returns.
A recent Zee Business report quoted Wiseinvest Advisors CEO Hemant Rustogi saying, “Many people go for conservating investment instruments as it gives assured returns and helps one prepare a retirement corpus in the long run. Let’s assume EPFO gives an average return of 8 per cent and the long-term inflation remains around 7 per cent. Considering you are investing in PF for a period of 20 years, if you put the same amount into a balanced mutual fund or an equity mutual fund, the return could be almost double.”
Even though the risk in equity investment is considerably higher compared to investment instruments like PPF or FD, the return are also relatively higher. As per Rustogi, while investing in equity is risky, inflation is a bigger risk at the moment. The reason why inflation is a bigger risk, is because a lot of investors don’t even factor inflation while calculating their returns. He advises that if one invests in mutual funds through SIPs consistently every month, they can get higher returns in the long-term.
Worth mentioning here is that one can not calculate accurately how much money they will require post-retirement since the cost of living is going up. In order to ensure that you have enough money to sustain yourself comfortably post-retirement, it is important that people invest in instruments which will beat inflation and help them earn returns higher than inflation.