What is Inflation?

Everything becomes more costly with time.

This is something we are all aware of.

This is referred to as inflation.

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We won’t go into detail on why inflation is required. Governments all around the world, however, strive to maintain inflation within a safe range.

It is deemed harmful if inflation is more or lower than this.

Inflation is sometimes expressed in percentages per year.

Many individuals are aware of their earnings. They should also be aware of the rate of inflation.

Nobody, however, combines the two.

This is a crucial point.

Always keep the inflation rate in mind while looking at returns.

So, if your mutual fund gave you a 15 percent return and inflation was 5%, your real return would be 15-5 = 10%.

This is also known as your real return.

Some “safe investments” have returns that are so poor that they don’t even beat inflation.

This implies that, while such investments appear to be giving you poor returns, they are actually giving you negative returns, or you are losing money.

Always keep track of genuine results!

What is Discounting?

The time value of money theory states that the rupee’s worth will always be higher now than it will be in the future.

The process of discounting is used to calculate the present value of money for a future payment.

The higher the discount, the more risky the investment.

Let’s assume you had the option of earning Rs 2 lacs today or Rs 2.5 lacs after a year for selling an automobile.

You must determine which alternative provides you more money on the sale today utilising discounting, depending on the discounted rate.

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