Reverse Inflation Calculator is very important for everyone whether you make any any investments in stocks, mutual funds through SIP or Lumpsum, ELSS Funds, ETF, PPF, FD, RD, Gold, Post office monthly income scheme (POMIS) or any other form of financial investment or you do not make any investment at all in anything.
Why because reverse inflation calculator will help you to find out the value of your money which you have right now or will get in future in present.
In other words, if you have a present value and you want to calculate a future value, we call it an interest rate (compounding). Whereas, if you have future values and you want to estimate their worth today, we use a inflation rate (discounting).
Interest rates and discounting rates are two sides of the same coin. Discounting, is the act of determining how much less tomorrow’s currency (rupee, dollar, pound) is worth.
As an investor you should know the (TMV) “time value of money” the value of money does not remain the same across time. Meaning, the value of Rs.10,000 today is not really Rs.10,000, 3 years from now. Likewise the value of Rs.10,000, 3 years from now is not really Rs.10,000 as of today.
Whenever there is motion of time, there is an element of opportunity. Money has to be accounted or adjusted for that opportunity.
For e.g. Your father might have told told you that we used to get 1 kg of mangoes in our time at only 5 rupees or may be even less than that. But if you go now to buy the same, this sound unrealistic, reason being with time there is inflation (interest).
That is why one should know, what will be the future investment he made for the retirement or any other goal such as wedding, vacation, children studies, etc. is sufficient enough, if you calculate it in today’s term in respect to certain cost (interest) accounted.
For example assume you are expected to receive Rs.100,000, 10 years from now. Reverse Inflation Calculator helps you answer find out the worth of that Rs.100,000 in today’s terms.
Still, don’t get it let us take an example suppose you made an SIP in an mutual fund scheme, let say you are investing Rs.2000 every month for 5 years and expecting 15% CAGR returns.
Using moneycontain monthly SIP Calculator I have calculated the expected amount at the end of the tenure which is ₹1,79,365, check out the image below:
Now many novice investors thinks alright this is the amount I would get and he/she would be very excited without understanding that with time the value of money does not remain same.
If I just use moneycontain reverse inflation calculator assuming a average inflation rate of 5% during the same tenure the real amount or inflation adjusted amount would be Rs.1,40,537 i.e. -21.65% decline in value of money.
Ohh,?? this hurts, but atleast you are now fully aware about the gravity of the situation and this might help you to look for investments which are giving better returns in long term.
This is not limited to mutual fund but even for stocks or any other form of investment.
It may sound alien to most people worldwide who does not have any idea of how inflation impacts their money, let alone impact even the word inflation itself is alien to them.
Here is the thing, what was the average inflation in the past knowing that you can put an estimation of future inflation rate, and with help of this you can estimate how much you need to earn, save, invest for your future to be more secure.
Before we dig deeper in to the subject, you can use below moneycontain Reverse inflation calculator and check the actual returns of your future investments in todays term, for this you just need to enter the amount you would be receiving in future, enter the average inflation rate expected during the tenure and lastly enter the investment duration i.e. time period.
The moneycontain reverse inflation calculator will show you the value of your money that you would be getting and how much percentage has declined due to inflation.
Also, Keep in mind it is irrespective of the currency you use, so whether it is rupees, dollars pounds or for that matter any other, reverse inflation makes impact equal to all.
By using below value of money calculator you can easily find the answers of question such as:
- What will 10000 be worth in 5, 10 years?
- What is the value of 1 crore after 10 or more years?
- What is the value of 1,000 rupees in 20 years?
- How to calculate future value of money using inflation rates?
So on and so forth, so go ahead and try it yourself.
What Is Reverse Inflation Calculator?
Reverse Inflation Calculator helps you in finding the real value of money or inflation adjusted return that you may get in future in present terms. Not only investors but big or small businesses use present value calculations for capital expenditures and routine business planning.
Being able to determine the present value of each potential investment, purchase, or cash flow before committing to it can help you and your company make the best possible decisions.
You can determine how much of the total future value you have already accumulated at any given point by using the above reverse inflation calculator:
For example let take this question:
1. How much is Rs.100,000 after 5 years, worth in today’s terms assuming an opportunity cost of 9.5%?
Now, to find the answer you will need a reverse inflation formula, Which does seem quite easy but not all are math genius (including me), so its better to have resources and tools to save your time.
Present value of money = Future amount /(1+inflation rate)^no. of years (tenure)
PV = 100,000/(1+9.5%)^5
Answer = Rs.63,522
2.The interest rate for a one-year investment is 8% and the future value is Rs.1000. Find the Present value of money?
Money available in the future is less valuable than the same amount of money available now, so it has to be discounted by a factor to arrive at your money’s current value, which is also called ‘Present Value’.
The factor used in this discounting process is called ‘Discounting Factor’.
However, doing this calculation manually takes much time and energy, that is why, we have build a reverse inflation calculator for you, to easily calculate this complex equation.
Now, that you know about the basics of reverse inflation calculator and its use let me brief you a little about how inflation makes a impact to your money and investment?
If you are really serious about your future investments than do read the complete post as it contain answers of all your questions.
What Is Inflation?
In layman term inflation refers to the increase in the prices of regular or everyday use goods and services like food, grocery, clothing, land, housing, medical care, education, electronics etc.
High inflation results in higher cost of living which leads to de-growth of a economy, this also shows the decrease in purchasing power of any country currency.
In other words as prices rise due to inflation, the value of the currency declines as its purchasing power choke with each increase in the price of basic goods and services.
Having said that, a moderate inflation is still required in order to make sure people do not hoard money under their mattress and expenditure is encouraged.
Check out the below image to understand example of inflation in simple words:
One need to understand “time value of money” as money loses its value over time, investing becomes important. Investing make sure a sustainable economic growth of a country and overall.
Due to inflation, the value of money decreases over time. For example if you have kept Rs. 1,00,000 with you as idle for 5 years instead of investing, assuming an inflation rate of 7% per annum the value of your money will be reduced to Rs.71,299 in percentage terms its -28.70% decline overall.
Below infographic representation shows you how inflation have impact on your life as well as investments across different asset class.
As you can see the value of Rs. 1 lakh after 20 years declines to Rs.25,842 assuming a inflation rate at 7% per annum. If you convert this in percentage terms it is down by -74.16% due to inflation.
Now, check out the below image to understand how inflation make a great impact even on your investments across different financial instruments such as Equity (stocks), SIP, FD, RD, Commodity & even real estate.
I hope you now have a better understanding of inflation, but wait a minute, even you know inflation and its impact on your money, how will you going to deal with it? Let us see some of the ways.
How Reverse Inflation Calculator Is Useful?
Now to counter inflation you should know the real returns also known as inflation adjusted return from your investment rather than the simple returns. To better understand let us take an long term goal example this time:
You are worried about your children higher education when they turn 18, therefore you thought of investing some money every month so that you can avoid making lumpsum arrangements when they grow up.
In order to do so you made an estimation about the expenses you need to make at that time and you come to conclusion that Rs. 10 lakh would be sufficient for the same.
At present your child age is 9 Years, which means you still have 9 years, let us first use moneycontain savings goal calculator to know how much you need to save and invest every month in order to achieve this corpus.
As you can see by using the moneycontain savings goal calculator you come to conclusion that you would need to invest 5K approx. every month for 9 years at a nominal interest rate of 12.5%. But here is the thing as I said above, you need to account impact of inflation on your investments.
Let us see using moneycontain reverse Inflation calculator about the value of your future money in present terms. Check out the image below:
As you can see using the reverse inflation calculator, assuming a average inflation rate of 5% p.a for next 9 years the value of your returns would be only around 6.5 lakh, a steep decline of -35.54%, this may shock you for a while but this is what it is.
Inflation eats up and erodes your return with time, so what you can do now to accomplish the financial goal about your child higher education.
There are only 2 things you can do either increase the investment amount every month i.e. instead of 5k, invest much more or choose the right investment option which can deliver you better returns with time.
The reason I am telling you this is because next time when you make any investments in any form to attain your financial goals you have the correct picture of the returns you would be getting in future hence this is why reverse inflation calculator is very useful for you as an investor.
What are Best Investment Options to Beat Inflation?
The the amount of money you have as savings or you make stays the same then with time it will buy you less due to inflation. Inflation have a negative impact on your purchasing power, or the amount of goods or services your money can buy therefore it is always advisable to make investments as early as possible in your lifetime.
If you want the money to keep pace with inflation investing is the first and foremost thing which can save you.
Having said that most people focus on the risk of losing money while investing. They often get surrounded by negative thoughts, such as “If I invest money on something now, it may go down or even give negative return. However very few people look at the destruction of wealth by Inflation itself.
Let us see the type of financial instruments or asset that you can use to invest to overcome inflation.
There are different types of investment options available for everyone depending upon their need, below I have listed some of them. We will discuss in brief about which one have highest possible returns as well as the one’s those have limited risk profile.
1. Stock Market (Equity) – Investing in equities i.e. stocks can garner you greater CAGR returns, consider investing in them for long to medium term. However you need to keep in mind the risk associated while investing as they are highly volatile in nature and one wrong investment can lead to disaster.
For example: Tata Consultancy Services Limited (TCS) which is one of the leading IT company in India has given about 30% p.a. overall returns in last 10 years.
Auro Laboratories a leading pharma company has given about 42% return in last 5 years. Having said that there are bad examples too, but if you do proper technical and fundamental research than investing can be done in equities.
MRF shares have generated multi fold returns for the investors over the years.
If an investor had invested Rs 1 lakh in MRF shares 25 years ago, the corpus would have been worth Rs 74.02 crore in April 30, 2018 when the stock was its peak.
Even 1 share costed Just Rs.11 in the year 1993 which at the peak (2018) was around Rs.81,423.
Most of the experts in finance have suggested investing in equities as the best method to beat inflation in long run.
2. Mutual Funds (SIP/Lumpsum) – Investing in mutual funds can not only generate better returns but also the risk associated while investing comes down significantly.
Most of us do not have much time reading and learning about investment and can’t track stocks every now and then, therefore investments in mutual funds whether through Systematic investment plan (SIP) or Lumpsum investment can be a great idea.
There are many Asset Management Companies (AMC) which offers various types of schemes depending upon your need and one can invest as low as Rs.100 per month even, and yes the returns are par when you compare it with normal FD or RD.
Having said that there is no guarantee of the returns it can be higher or lower depending on how the stocks have performed.
Investors choose index fund such as nifty 50 index which purchase all the stocks in the same proportion as in a nifty index to invest because of less risks involved, Moreover if you checkout the returns for these indexes since inception, it has been approx. 15% p.a. cagr.
3. Investing In Commodities – Commodities such as gold and silver has always been a center of attraction not only for investments but as an traditional ethics in India.
Which is good at one hand as these have always been used as hedge against inflation. When the value of currency decreases, commodity can be a safe heaven as its happened in 2020.
You may also invest in gold ETFs as well. Having said that if you see the overall average gold returns its been between 5-12% moreover unlike a stock or a bond, it generates no cash flows in the form of profits, dividends, or interest income and time duration required for a commodity to give better return are higher, therefore when you count inflation in your returns it is still less comparing to other class of assets.
4. Fixed Deposits/Recurring Deposits/Bonds – These types of investment class are useful for medium to short term moreover the returns are guaranteed. However, if the inflation is higher during the investment tenure than your return on these instruments than there is no point doing so.
Still they are less risky and if you have more amount whether lumpsum or per month to invest than you should consider them.
Moreover while investing instead of putting all eggs in one basket you should diversify the investment to other asset class such as mutual funds, equity etc.
SIPs are one way of averaging market volatility, especially in falling markets as the same quantum buys more units of exposure.
This does not mean at all not to invest in FD or RD, but at the same time you should have an eye on inflation and do tactical strategies to overcome it instead of just seeing the value of your investments getting eroded by the inflation.
Other than above methods there are other regular investment methods that you can do considering your retirement goals, few of them are listed below:
- EPF – Employee provident fund
- PPF – Public Provident Fund
- NPS – National Pension Scheme
- Debt funds
- Post Office MIS Scheme (POMIS)
- Equity Link Saving Scheme (ELSS)
So, do not wait if you have not started investment, click on this link and Open free trading/demat/mutual funds account and Start Free trading, Investing In stock market, Best Mutual Funds Scheme (Equity, Debt, Hybrid, ELSS, ETF etc.) Online, Paper-less Within Minutes Now…
I hope you have completely understood the concepts behind inflation and have used the Reverse inflation calculator to know the future expenses.
Understanding of inflation in life makes you better at spending, investing, saving at correct time. So make sure and planned the things accordingly to be at better position than others, not only for you but for your family and children.
The first step you need to take to start saving is setting your savings target. Until and unless you have a set goal, your plan will be directionless. Start by deciding your savings target so that you are financially secure after retirement.
So make sure and planned the things accordingly to be at better position than others, not only for you but for your family and children. For example as general rule of thumb start savings:
In your 20s: Aim to save 25 percent of your overall gross pay
By age 30: Have the equivalent of your annual salary saved
By age 35: Have twice your annual salary saved.
By age 40: Have three times your annual salary saved.
By age 45: Have four times your annual salary saved.
By age 50: Have five times your annual salary saved.
Nobody on this earth have imagined that we might be dealing with a pandemic such as Coronavirus in 2020, people have lost their jobs, business have been hampered drastically, economies throughout world have suffered enormously.
It is not easy to set things up how it was earlier, even if that have not happened, suppose you get fired from your job or you don’t want to do job further, assume you met an accident, do not get me wrong I am not hoping for these bad things to happened to anyone, I am just trying to point out – life is ruthless and at the same time unpredictable.
Saving and investing should be done by everyone at the very beginning of your life and should continue till you know this much would be enough for me to take a retirement or be financially free.
Want to learn about stock market step by step than do read this amazing stock market guide designed specifically for beginners to clear the concepts in easy language.
You can also check my reviews on best brokers in India here:
If, you have liked the content please do share it with your friends or on social media, as sharing do bring the good karma. If you have any questions or feedback you can leave them in comment box below.
Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand more about Reverse Inflation calculator and its importance, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.
Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.