How to beat inflation?

While doing financial planning for retirement or for your child's future or any other long term financial planning  you will have to consider inflation. And if you don't consider inflation while doing the financial planning, you will surely fail.

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The inflation rate is based upon the consumer price index (CPI). The average inflation of India in 2011 is 8.88 %. Now if you consider bank's saving account which provides 8% annual return. According to above data you are in loss of 0.88%.

If we consider the overall 7% average annual inflation rate lets see what will happen 20 years down the line.

• Say for example, today the MBA educational expenses are around Rs.5 lakhs in 2011 but after 20 years from now in 2031 the same expenses will be Rs.20 Lakhs
• Today in 2011 suppose if you need Rs.1 Crore to retire peacefully in India than you will need almost Rs.4 Crores in 2031 to retire peacefully with the same level of lifestyle.
• Suppose today in 2011 you need Rs.10 lakhs for the marriage of your daughter than in 2031 you will need Rs.40 lakhs to do the same level of marriage.

Equity is the only tool which can beat inflation in long run. 

Those days have become history when people used to build wealth with products such as PPF, Bank FDs and Government Bonds. Equity is the must have asset class in anyone’s portfolio to build wealth in today’s world. Equity can beat the two biggest wealth killers (Inflation and TAX) in the long run and provide highest returns than any other traditional asset class in the world.

Equity mutual funds are so much convenient and professionally managed and cheap that they can build enormous wealth for you in the long run that you can fulfill all of your financial goals.