Is your portfolio tackling inflation?

Inflation is the increase in general price levels in an economy. What it means is that in an inflationary economy your money won't buy as much today as it did before. Inflation is a decline in the purchasing power of money. So what happens to your investments when inflation shoots up?

Inflation is often termed as devil by the common man. The grocery bills find their way up while the value of your hard-earned money plummets. Money is not safe in fixed deposits or post offices schemes - inflation will be eroding your money locked there.

It is difficult for investments yielding single digit returns to keep pace with inflation. Be it soaring oil prices or global factors, inflation is here to stay and investors must learn to cope with it.

Traditionally, real estate and equity have known to beat inflation. Property prices in many cities have saturated at high levels. Coupled with it, banks are increasing their lending rates. Hence, investments in property may be difficult for some.

Stock markets have taken a beating over the past few months. It may climb up a few points only to slide down the next session. Under the current scenario, only those investors who research and can predict the market movements should enter. Over the long term, the stock markets have proven to effectively beat inflation. It is prudent for the risk-averse , however, to keep away from the turbulent markets.

Diversified equity funds, balanced funds and other mutual funds are a good way to invest indirectly in stocks. Professionals make judicious stock picks and your portfolio earns steady returns over the long term.
Gold prices have been on the way upwards for sometime now.

If the inflationary pressures continue the price of yellow metals could create records. Returns on investment in gold mutual funds have been more lucrative than equity. Over the last year, returns are to the tune of 47 percent, and that makes it a wide open option in an inflation-ridden scenario .

Systematic investment plan (SIP) is an investment strategy for accumulation of wealth in a disciplined manner over a long term. Here, a specific amount is invested for a continuous period at regular intervals. It allows the investor to buy units on a given date every month. The investor decides the amount and also the mutual fund scheme.

For this fixed amount, more number of units are purchased in a declining market and less number of units are obtained in a rising market. The investor benefits from rupee cost averaging that works in his favour.