Inflation, Investments and Entrepreneurship

Inflation

The cost of any commodity goes on increasing as time passes. This is called as inflation. All of us must have seen that the prices of land, crude oil, food items and similar commodities goes on appreciating year by year. Let's say, India's current annual inflation rate is 8%; then an object costing Rs. 100 today, would cost Rs. 108 after one year.

If you see it the other way, it's the value of money that goes on decreasing. Buying power is another term used for value of money. Suppose, today you can buy 10 chocolate bars with Rs.100; but after 2-3 year, you might be able to buy only 9 or 8 with the same amount of money. That's the reduction in buying power of money. This is another way of defining inflation.

Investments

Investments gives you returns on your idle resources after a period of time. It creates value addition to your money, thus increasing its buying power than it would have been if kept idle. Most of the people think that, the objective of investment is to get maximum returns with minimum risks. The actual objective is to beat inflation. You should get more money (more buying power) in investments than you lose due to inlfation.

The Good, the Bad and the Ugly!

When the rate of interest is greater than the rate of inflation, it's called as a good investment. When the rate of interest is approaximately equal to the rate of inflation, it's not so good investment. It's like no profit no loss situation.  And the worst thing one can  his money is to keep it idle. He is creating losses in this process and his money would ultimately vanish.

All those people who put their money in savings account or fixed deposit accounts in banks, please check the inflation rate. It is much more than what your bank could give as interest rates. That means you are losing money year by year. It's a bad investment. I would recommend something high return and medium risk financial instruments like bonds, debentures, stocks, mutual funds, forex, gold, land etc. Let's categorize them into two (not on the basis of risk). Bonds, debentures and stocks in one. The rest in other. 

Entrepreneurship

If you invest in the second category, you are doing nothing extra than investing. Wherein if you investing in first category, you are indirectly promoting entrepreneurship by raising capital for an entrepreneur. When you buy shares of a company, you become the shareholders. If you see the bigger picture, you are actually contributing towards country's GDP by creating more start-ups, creating jobs for people.There are countless benefits. And this is how inflation promotes entrepreneurship.