Impact of Inflation on Everyday Investments: Are You Really Beating It?

Suppose you had kept ₹10 lakh in a fixed deposit five years ago, and you are earning an approximate interest of 6% on the amount. You feel secure. You are confident that over the years, your money will grow to a substantial amount.

Although here is the catch: even though the amount in your account is rising each year, the cost of everything else will increase at an alarming rate. The same grocery basket that cost ₹1,000 back then now costs ₹1,300 or more. That's inflation quietly at work, slowly eroding your purchasing power as you're busy counting nominal gains.

In the past decade, inflation in India has fluctuated between 4% and 6%. Even at a modest 5% inflation rate, the real value of ₹1 lakh today will shrink to just about ₹60,000 in 10 years.

Hence, unless your investments are giving you returns that exceed inflation, you are in reality losing money slowly.

So the big question is: how to beat inflation? More importantly, are your investments capable of beating inflation, or are they not going to bring any results? So let us find out!

What is Inflation and What are its Impacts?

In simple terms, inflation is essentially the rate at which the general level of prices rises over time, whether for goods or services. The result is the reduction of the purchasing power of money. It can also be measured by the Consumer Price Index (CPI).

In other words.

• When inflation goes up, your money buys less.
• If your investment returns are less than inflation, you're actually poorer in real terms.

In India, where inflation dynamics are driven by food, energy, and global trade costs, even a mild uptick can significantly influence household budgets and long-term investment outcomes.

Inflation does not have the same effect on all types of investments; some tend to crumble under pressure, while others thrive. It can also impact your retirement savings without a robust retirement strategy.

Let's break down the impact of inflation on investments and what that means for your real returns.

1. Savings Accounts and Fixed Deposits: Safe but Sluggish

In India, people often prefer fixed deposits or savings accounts for the safety they offer. However, with average FD rates around 6%–7% and inflation averaging 5%, the real return barely crosses 1–2%.

Inflation has a massive impact on this investment option, as it offers minimal or no wealth creation. It is like standing still while inflation runs a marathon.

2. Bonds and Fixed-Income Instruments: Stability at a Cost

Among several options, conservative investors prefer bonds and government securities. But since they pay a fixed rate of interest, rising inflation eats into those predictable returns.

Let us assume you get a 6% bond return in a 5% inflation year. So, your real return is only 1%. Hence, you are losing value even when you see that your account balance is increasing.

3. Equities: The Long-Term Inflation Fighters (Mostly)

Historically, stock investments have always outpaced inflation in the long run. Because companies can increase prices and expand their earnings, thereby increasing their intrinsic value, this aligns with inflationary trends.

As per NSE reports, the Nifty 50 index has delivered a return of 11.8% CAGR in the past 15 years. Considering that the average inflation rate is 4 to 6%, it is clear that this investment option can beat inflation. However, it is possible only if you have invested consistently through market ups and downs.

4. Real Assets: Gold, Real Estate, and Commodities

Tangible assets like gold and property often move in tandem with inflation. Let us look at the different assets and if they can beat inflation:

Gold

Gold is an asset that has seen considerable appreciation over the past 15 years. It has risen from ₹14,000 per 10 grams (2009) to over ₹1,00,000 (2025), thereby giving an approximate annualised rate of return of 13.6%. It comfortably beats inflation.

Real Estate

Property prices and rents typically increase with inflation, though regional variations and liquidity issues exist.

Commodities

Assets like oil or metals generally rise in price during inflationary cycles, but they're volatile and best suited for diversified portfolios.

Real assets have quite a high chance of beating inflation.

How to Beat Inflation in India?

If you want to beat inflation, you do not have to chase high-risk assets. You only have to structure your portfolio to grow faster than the price rise. Here is how to beat inflation in India:

Focus on Real Returns

Track inflation-adjusted growth. If inflation is 6%, aim for at least 9–10% returns annually. You can also use inflation investment calculators to measure the real gains.

Asset Diversification

Never rely on only one FD or stock. It is always best to blend equity, debt, gold and real estate to balance volatility as well as returns.

Use Mutual Funds Wisely

Opt for equity mutual funds for long-term goals (5+ years) and debt mutual funds with indexation for medium-term goals. SIPs (Systematic Investment Plans) average out volatility and boost inflation-beating potential.

Avoid Idle Cash

Keeping cash at home or at the bank will not help beat inflation. Park idle funds in liquid or short-term debt funds that yield better real returns.

Rebalance Regularly

Inflation investments affect asset correlations. Review your portfolio yearly and rebalance to maintain inflation-adjusted growth.

Get Expert Advice

It is always wise to get professional advice when it comes to investment. Hiring a financial advisor can greatly assist in overcoming inflation without hassle.

Conclusion

Inflation is surely silent, but its impact is nothing like that. With every percentage that increases, it quietly chips away at your future goals. Although the good news is that inflation can be beaten, not by luck, but through smart, intentional investing. It is necessary to focus on real assets like real estate, mutual funds, and equities. Moreover, it is also important to review your portfolio periodically to turn inflation from a threat into a challenge that you can handle. Always remember that money not growing faster than prices is shrinking in value, so invest wisely and with purpose.

FAQs About the Impact of Inflation

Why is it important to beat inflation through investing?

Beating inflation ensures that your savings retain, or ideally, increase, their real value over time. If you earn 6% returns but inflation is 6%, your actual gain is zero. Long-term financial goals like retirement or education depend on real, inflation-adjusted growth.

What is the average inflation rate in India?

India's inflation rate typically averages between 4% and 6%, though it fluctuates due to fuel prices, food costs, and global supply trends. Even at 5%, inflation can halve your money's value in roughly 14 years if left unchecked.

Can real estate protect against inflation?

Yes, real estate prices and rental income often rise in tandem with inflation. However, liquidity issues, high entry costs, and regional variations can impact returns, so it's best treated as part of a diversified portfolio.

How does inflation affect retirement savings?

If inflation averages 5%, expenses can double in about 14 years. That means a ₹50,000 monthly expense today could cost ₹1 lakh by retirement. Hence, retirement planning must factor in inflation-adjusted growth.