In the world of personal finance, we often worry about market volatility, taxes, or poor investment choices. However, there’s one thing that eats away at your savings every day in silence, inflation. It doesn’t generate the headlines of a stock market crash, yet it denudes wealth slowly and far more dangerously if left unchecked.
A silent killer
Inflation is a rise in the price of goods and services over time. A 5 or 7 percent annual increase may seem like small potatoes, but over time it compounds and severely diminishes your purchasing power. What you can buy in two decades for Rs 1 crore may be only a fraction of what you can get for the same amount today.
Thus, at an average inflation rate of 7 percent per annum, Rs 1 crore today would be worth just Rs 25.84 lakhs 20 years from now. That means, if you want your retirement corpus to be worth Rs 1 crore at today’s values, you will need to budget for Rs 4 crore after 20 years.
Impact of inflation
Here’s what some expenses could look like 20 years hence, assuming 7 percent annual inflation:
School fees of Rs 1 lakh per year today will be Rs 3.87 lakh after 20 years.
A Rs 5 lakh medical procedure today will cost Rs 19.35 lakh in 20 years.
Expenses of Rs 50K per month today will cost Rs 1.93 lakh per month after 20 years.
So, if you plan to retire 20 years from now and consider Rs 1 crore a comfortable cushion, think again. It might not even be enough to pay for basic living expenses for a few years.
The math behind the erosion of value
Let’s illustrate this with real calculations. If inflation remains at 7 percent, the value of Rs 1 crore reduces by the following amounts each year (approximately).
| Year | Value After Inflation (7%) | Purchasing Power |
| 0 | Rs 1 lakh | 100% |
| 5 | Rs 71.30 lakh | 71.3% |
| 10 | Rs 50.75 lakh | 50.75% |
| 15 | Rs 36.15 lakh | 36.15% |
| 20 | Rs 25.84 lakh | 25.84% |
In just 20 years, your Rs 1 crore will buy what Rs 25 lakh can buy today. That’s a 74 percent fall in value — without losing a single rupee.
Illusion of wealth: why nominal returns mislead
Many investors feel safe when their investments deliver 7-8 percent annual returns. But if inflation is also 7 percent, their real return is zero.
Here’s an example
- You invest Rs 1 crore in an instrument yielding 8 percent per year.
- After 20 years, it grows to around Rs 4.66 crore.
- But if inflation has been at 7 percent, the real value of that Rs 4.66 crore will be approximately Rs 1.20 crore in today’s terms.
So, you’ve only marginally protected your purchasing power, rather than growing it meaningfully. This is the silent manner in which inflation steals from the unaware.
Also read | Why equity outlook remains constructive while fixed-income returns may moderate
Inflation-adjusted returns: the real benchmark
Many investors focus on nominal returns: “My mutual fund gave me 9 percent returns.” But if inflation is at 7 percent, the real return is just 2 percent. Wealth really grows only when returns significantly outpace inflation.
Here’s how you should look at common investment avenues:
| Investment option | Expected return | Real return (after 7% inflation) |
| Savings account | 3% | -4% |
| Fixed deposit (FD) | 6% | -1% |
| Gold | 7-8% | 0-1% |
| Equity mutual funds | 12% | 5% |
| Real estate (net) | 7-8% | 0-1% |
Only equity-based instruments have consistently outperformed inflation over the long term.
To shield your wealth from inflation, you need to:
1. Invest, not just save
This is because the value of the money kept in a savings account or FD diminishes over time. When there’s high inflation, consider investing in assets that grow faster than inflation, such as equity mutual funds, stocks, REITs, or even gold to hedge partially against your investments.
2. Understand real returns
Don’t chase returns blindly. Consider real returns or returns adjusted for inflation. Ten percent returns when there’s 7 percent inflation means you’re only growing 3 percent net.
3. Revisit your portfolio regularly
Inflation can fluctuate. Keep your portfolio dynamic and review it annually to stay ahead of changing market conditions.
4. Work with a financial expert
A good financial expert will take into account inflation, taxes, lifestyle changes, market risks, etc, to set up a strong long-term plan that meets or exceeds inflation.
Also read | Avoiding property demolition: Smart tips for homebuyers to ensure a secure purchase
Don’t let the thief win
Inflation doesn’t just steal your money, it steals your future — your dreams, your dignity, and your choices. The Rs 1 crore you proudly hold today may not even pay for your medical expenses two decades later if you don’t invest wisely.
The best defence is knowledge and action. Protect the purchasing power of your wealth with smart inflation-beating investments.
Don't let inflation rob your peace of mind.
The writer is a personal financial mentor with over 25 years of experience.
Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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