By Vipin Agnihotri
In my opinion, a penny saved does not necessarily mean penny earned. This is because of the simple reason that inflation eats away the value of every rupee earned. Even worse, it is quite tough to forecast inflation.
No one will argue with the fact that the bull run on the bourses has been unprecedented, yet there exists a vast majority of risk averse investors who are interested in playing safe and opt for assured return schemes. This very class of investors is more exposed to the menace of inflation.
Taking this into account, bulletproofing one’s portfolio against the threat of inflation necessitates the need to come up with a portfolio that includes some inflation hedged investments. This in turn will make sure that you get sufficient returns even after factoring in high rates of inflation.
It is worth mentioning in this regard that inflation indexed bonds give you return at a fixed rate, and yet incorporate the ability to combat inflation. Interestingly, such kinds of bonds were allowed by Reserve Bank of India way back in 2004.
According to experts, Reserve Bank of India’s proposal in 2004 would have benefited investors who desire predictable real cash flows despite inflationary pressures, but such instruments never caught on. There is a buzz in the market regarding the possibility of similar capital indexed bonds being reintroduced.
Initial signs are that even infrastructure companies are looking at the bond route to meet their big financing requirements. On the other hand, for households and individuals such bonds hold the key to bridging the gap between risk and return over the long term.
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