Mumbai, Jan. 29 -- Happy with your high bank deposit rates? Sorry, the inflation monster has quietly eaten it up. A consumer inflation rate of more than 10% and fixed deposit (FD) interest rate of 9% mean the returns on your bank deposits are actually negative. If you had set aside Rs. 10,000 in December 2011 in a bank FD that gave you an annual return of 9% and were planning to buy something that could cost Rs. 10,900 a year later, then probably you would have been disappointed.
During the intervening period, the retail price of the same good would have grown by over 10%, putting a spanner in the works. This is because "real" interest rates or earnings on assets adjusted against inflation are negative.
"Real interest rates tend to weaken when inflation remains high in the economy for a long duration," said Ananda Bhoumik, senior director- financial institutions, India Ratings & Research- a Fitch group company.
Consumer price inflation - a more realistic cost of living index because it captures shop-end prices - has shot up to a worrisome 10.56% last month.
Almost all everyday products and services - from food to footwear, movie tickets to medicines, restaurant meals to deodorants and lipsticks - have turned dearer in the past 12 months, pinching family budgets hard.
Experts recommend more diversified financial planning to keep returns ahead of inflation.
"Investors need to invest 50% of their investment into assets that beat inflation in the long term, such as equities and real estate," says Vishal Dhawan, founder of Plan Ahead Wealth Advisors.
Published by HT Syndication with permission from Hindustan Times.