A recent viral post on social media claimed the following hard-hitting numbers:

Rs. 1 Crore today buys a house. 

Rs. 1 Crore in 20 years buys a car. 

Rs. 1 Crore in 40 years buys a sofa. 

Is this true?

Assuming 7% inflation, the value of money halves every 10 years. So Rs. 1 Crore in 10 years is worth Rs. 50 Lakhs. In 20 years it is worth only Rs. 25 lakhs in todays’ value - just enough to buy a top-end model of a compact SUV. In 30 years it will be worth Rs. 12.5 Lakhs. In 40 years, it will be worth Rs. 6.25 Lakhs in today’s value - sufficient to buy a premium sofa and some additional house furniture. 

Inflation makes your wealth shrink in value faster than you can intuitively understand. This is the main reason to plan your investments for long-term goals such as retirement and children’s education / wedding. This is why you need to be investing in inflation-beating asset classes such as equity.

Let’s take the example of an Equity Mutual Fund. Value Research notes that the Nippon India Growth Fund - launched in 1995 with a NAV of Rs. 10, recently closed at a NAV of over Rs. 4,000. This translates to an annualized return of over 23 per cent. To visualize this better, had your parents invested Rs. 1 Lakh on this fund in 1995, it would be worth over Rs. 4 Crores today! 

While on one hand, high inflation is inevitable in a developing country like ours, mindful investing in a growing economy can also help you grow real wealth, faster than inflation can eat away its value. The above-mentioned illustration is just one example of a fund with a long history. There are many mutual funds with good strategies and consistent performance. The choice of the right set of funds for your goals and portfolio may be best decided by your investment advisor, based on your goals and needs. Even if you get a reasonable 10-12% returns over a long period of time, you can comfortably beat inflation and meet your financial corpus goals. 

Having said that, the journey of this fund over the last 3 decades has not been smooth. By nature, the stock markets are volatile, and only those who had the patience to withstand such ups and downs, and patiently hold on to their investments, were the ones who would have been able to make Rs. 1 Lakh worth Rs. 4 Crores. 

For instance, with the current economic outlook and high market valuations, the Indian stock market indices fell around 10-15% in recent months, and fund houses have been warning of low return expectations for the coming months. This can be a scary period to remain invested. This is when it is important to be mindful of why you are investing - if you have a clear plan targeting long-term financial goals to achieve inflation-adjusted corpus targets, with portfolio-level risk management via proper asset allocation, periodic reviews and rebalancing, the best thing you can do is to remain invested through this volatility.

Otherwise, inflation is waiting just around the corner to start eating away the value of your savings - slowly, gradually, but inevitably!