We invest for returns, and in these uncertain times, only one income source for the household will not suffice. As a result, people tend to look for passive income sources, such as putting their extra money in savings accounts, or if they have a property, they may rent it out for extra cash. And now, amid high inflation fears caused by massive liquidity induced globally by global central banks, we consider making inflation-beating returns. Beat the inflation Beat the banks Get passive income
This is also because the value of money depreciates over time; for example if the inflation rate is 8%, Rs. One hundred will be worth only Rs. 92 after a year. As a result, one is always looking for options that can earn a higher return than the current inflation rate.
So, here are some examples:
1. Commercial property:
In the long run, real estate, which should not account for more than one-third of your total allocation, provides inflation-beating returns.
A medium-longer term horizon pays off when investing in equity, and companies should be chosen based on strong fundamentals, prospects, and industry scope. Investors with limited knowledge or who cannot select stocks on their own can also use the SIP option in equity mutual funds. Despite the pandemic’s devastation, the Nifty has returned a whopping 70%, which is astounding for such an unusual year. And thanks to the compounding effect of the SIP, we will be able to outperform inflation by a reasonable margin. Diversified equity mutual funds may provide a higher risk-adjusted return. In addition, when inflation is on the rise, equity tends to outperform.
3. Stocks that pay dividends:
This is yet another asset basket that provides a consistent source of income and allows for the accumulation of substantial dividend income over time. Assume you own a stock like TCS, which pays out increasing dividends over time, say over ten years, and you will undoubtedly outperform inflation. However, what comes into play here is the selection of good stocks that pay increasing dividends over time and that you continue to hold. And the simplest way to identify such stocks is to see if EPS growth is in line with dividend per share growth over time.
Historically regarded as a store of value, gold is also a hedge against inflation. And, when inflation is viewed as a risk due to the global-infused liquidity infused by central banks, gold may re-enter the Rs. 50000 range by the end of the year. And can again provide an inflation-beating return this year.
5. Global exchange-traded funds (ETFs):
One can look at global ETFs and focus on economies with lower inflation than India to generate higher returns than inflation. And investors will be able to reap a return in a medium time frame if they take this route.
6. Commodity stocks:
In times of higher inflation, these stocks, such as those in the metal, agri-commodities, or oil sectors, tend to benefit. At that point, the producers have pricing power, and companies in the space can take advantage of it.