It won't be wrong to say that knowingly or unknowingly, Mutual Fund investors have made a strong move to beat inflation. This move will be the most beneficial for them in the long run, if they stay invested through market ups and downs. But, how? Before getting into the details, we will go through certain basics.

What is inflation?

In economics, inflation is defined as, “a general rise in the price level in an economy over a period of time.” It refers to the rise in the prices of most of the goods and services for daily or common use, such as food, clothing, housing etc. If you have studied the meaning of inflation in school or college, you must also know that this phenomenon is a reality that one has to face in most economies. Beating inflation entails survival of the financially fittest and this is where Mutual Fund investments come to your rescue!

Firstly, to understand the impact of inflation on your money, you can take the help of a Mutual Fund calculator. This inflation calculator will help you find out how much you will need in the future to meet your current expenses whilst keeping up with inflation. For this, one just needs to add the value of their current expenses, the annual inflation rate, and the time period for which they are estimating the impact.

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Apart from this, SIP and ELSS calculators are also a Mutual Fund return calculator, which helps you find the future value of your monthly/quarterly SIP investment and determines how much tax you will save on your investments respectively.

Many people are of a belief that just savings are enough to beat inflation. But are they? What if your income doesn't increase as per the rate of inflation?

Let's take an example, if your child's school fee in class 1 is Rs 55,000, then the same fee, when he or she reaches class 10, will be a little approx Rs 1.08 lakh assuming 7% inflation. In such cases, will your savings be enough? Let's take another very simple example: the pizza you have bought in recent times has the same price as compared to the one you'd bought 5 years ago? No, the prices have increased. Even if they have increased marginally for certain commodities or services, eventually it makes a huge impact in our lives if we look at the bigger picture.

You can also take the help of the above-mentioned mutual fund calculator to analyse more such examples.

How does Mutual Funds help?

“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.” - Albert Einstein

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If you invest in Mutual Funds through a SIP (Systematic Investment Plan) for a long term, your returns on investment do not multiply but grow exponentially, all thanks to the power of compounding.

A = P(1 + \frac{r}{n})^{nt}

A = final amount
P = initial principal balance
r = interest rate
n = number of times interest applied per time period
t = number of time periods elapsed

Remember the compound interest formula from the school days? This is how your returns on Mutual Funds work when you invest through a SIP since the amount accumulated over a certain period gets reinvested. That's why it is advised by many to stay invested in Mutual Funds for a long term and beating inflation is just one of the many benefits you can enjoy by staying invested.

Author's Bio: 

I'm 32 years old Mutual Fund Investor & I love to guide peoples in investing.