Ways to Profit During Inflation

High inflation in India, previously considered unacceptable, should not be accepted as the new normal and the central bank cannot afford to drop its guard claims RBI deputy governor Subir Gokarn.

When inflation rises the value of our money diminishes, all essential commodities become dearer. In fact high interest rates impact our loans and make them costlier.

Rising inflation might just provide investors the opportunity to earn some extra money!

While volatile stock markets will give value hunters an opportunity to identify the right stocks for the next three years or more, investment in fixed deposits, short-term bonds or funds and gold might be a good investment option for the short term.

In the current scenario one can look at a portfolio ratio of 60-30-10 in equity, debt and gold, respectively.

Debt Funds

When interest rates rise following inflationary pressure they have a catalytic effect on debt instruments and the best and safe way of investing in them is through debt mutual funds.

In the last six months debt funds have overshadowed their equity counterparts.

Commodity Funds

Commodity-centric mutual funds could be used as a proxy for investment as they are well placed to benefit from the demand supply gap. Such funds usually investment in commodities like gold, silver, food products and metals

Gold/Silver

For centuries gold has been considered the best form of investment. From kings to potters, everyone bought gold and treasured it all their life. Till date the yellow metal continues to shine.

In times of recession, gold has been the safest bet, surging to all-time highs when all other instruments plunged.

Silver has outperformed gold for the past few months and is likely to give better returns in the coming few months as compared to gold. Silver prices are expected to enhance by 20-25 per cent in the coming year.

The best way to buy physical gold is through bars or coins else one can always invest in gold exchange traded funds.

Oil

Following the turmoil in the Arab world, oil prices are on the boil. So investment in oil itself can be a good hedge against inflation. Owning oil is a great play on the growth in India and China and looks to be a trend with many years left in it.

With some smart planning you can obtain good returns in these times. Your portfolio needs to be reallocated according to the changing market conditions.

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