As people with family members who are decades older, we’re sometimes treated to stories about how a total pocket money of 5 rupees was more than enough to buy all the things they ever needed when they were young. “Those were the good old days” is a constant refrain. We live in the second millennium, and we’re more than used to the prices of nearly everything rising each year. When you know that money is often worth more in the past than in the future, then how do you account for future savings and earnings?
We’ve all been told about the importance of planning ahead. However, sometimes, even the best intentions can mean nothing if we don’t consider one highly crucial factor: inflation. If you end up investing in a policy that has a lower interest rate than that of the inflation rate, then the money you save won’t mean anything in the future, even though it may represent a large sum right now.
Problems posed by Inflation
Inflation is almost like a domino effect. It leads to a series of events that ultimately affect our funds in a negative way. Here are some of the main problems posed by inflation that you must watch out for and consider while choosing investments:
1. Real income uncertainty
With prices continually on the rise, your income on paper may be much better than what it is in reality. Sometimes, many large organisations have fixed salary slabs and percentages for raises and these slabs may not account for inflation. So, if you started out with a certain package and end up with another in 5 years, though the sum may represent an exponential increase in your finances, it may not translate to the same largess in real life as the value of money has shifted.
2. Business uncertainties
Inflation can affect businesses negatively. When there is a high rate of inflation, exports from a country are often sold are prices that are not internationally competitive. The effects of this trickle all the way down from the profits of companies to the cost of labour, leading to a lot of uncertainty in businesses when it comes to the funds and profits earned.
As dreadful as the consequences of inflation may sound, there is something that can benefit you even in the face of rising prices: ULIPs.
1. Interest rates account for inflation
One of the biggest advantages of investing in a ULIP is that the interest rates at which your funds grow account for inflation. This means that the fund you have at the end of the term will still hold a large monetary value. Conversely, if you invest in a different option such as an FD, you may end up with a lesser amount of money, which also has a lesser value than what it did today.
2. High ROIs
ULIPs are also known for their high ROIs. Therefore, as an investor, you are likely to watch your funds grow at a good rate. This means that when the term of the policy is over, you will find yourself sitting on a satisfactory lump sum.
3. Fewer market risks:
When compared to other investment options such as mutual funds, ULIPs come with fewer market risks.
It is essential to plan your future smartly. Just the act of investing money for the sake of the better future is not always enough. Understanding how to grow your funds in a manner that is truly profitable in the future is the best way to go about investing them.
When you look at ULIP vs Inflation, ULIPs are, by far, the ULTIMATE WINNERS!