Teji Mandi Explains: How should you manage a portfolio in times of inflation?

At an eight-year high, consumer price inflation (CPI) was recorded at 7.79% in April. Inflation is an effect of economic growth, but high inflation causes a slowdown of economic growth.

Teji MandiUpdated: Monday, May 30, 2022, 04:22 PM IST
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Teji Mandi Explains: How should you manage a portfolio in times of inflation? |

What’s Happening?

Certain commodities' prices have increased in the last few months, or the amount of goods in packaged items has decreased. Continuous inflation reduces the purchasing power, leading to a decline in demand for goods and services. Currently, equities are in a volatile mood, while fixed income instruments have turned negative due to spiralling yields. Amidst all the chaos, here’s where you can invest:

  • Liquid mutual funds are the best option for investors these days as they are debt funds that are kept for short periods.

  • Gold is the next best investment option as it's a hard asset that could go toe-to-toe with inflation and hold its value over time. Unlike money, which policymakers can create out of thin air, gold requires immense time, energy and cash. This keeps supply in check.

  • Another best investment option is equities, but the trick here is to chase themes that will do good in the future. In a high inflation scenario, sectors such as information technology, finance, and materials tend to do well.

Should Investors Be Worried?

Portfolios take a toll in a high inflationary environment. The best way to remain calm is to diversify your capital in various asset classes - stocks, bonds, gold, real estate etc. That way, you will be less scared about the volatility in the market. Rebalance the portfolio whenever required, and rest assured of the gains.

What Lies Ahead?

The inflationary environment can be eased, but geopolitical events will continue to trigger inflation. The RBI and the government is doing their part by hiking interest rates, cutting fuel tax, cutting import duties and bringing export duties. Despite all these measures, the global effect of inflation will stay and impact the Indian economy.

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