Inflation, the sneaky increase in prices over time, can quietly erode your hard-earned money. Let’s dive into a real-life example to see how it works.

Scenario:

Imagine you have ₹50 lakhs (5 million rupees) and decide to invest it in a fixed deposit (FD) with SBI Bank for 10 years. They offer you a rate of 6.50%, and you opt for a cumulative deposit (interest gets added to the principal).

Without Inflation:

After 10 years, SBI would pay you ₹95,27,793.77. That’s an effective return of 6.66% per year. Looks great, right?

Inflation’s Impact:

But here’s the catch: inflation has been steadily increasing. Using the Consumer Price Index (CPI) for FY 2023-24, we can calculate that the inflation rate was around 4.88%.

Real Returns:

When we factor in inflation, your effective return is reduced to 1.697%. This means that while you earned ₹95 lakhs in total, the purchasing power of that money is significantly less than it was 10 years ago.

The Bottom Line:

Inflation can silently steal a significant portion of your investment gains. In this example, inflation took away ₹36,11,476.97 of your potential earnings.

To protect your wealth from inflation, consider investing in assets that can appreciate faster than the inflation rate, such as stocks, gold, mutual funds, real estate, or inflation-indexed bonds.

Would you like to explore other investment strategies or learn more about inflation’s effects on the economy?

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