Definition of Mutual Fund

Definition:

A mutual fund is an investment scheme. It is usually meant for small retail investors who do not possess the special knowledge required for making investment decisions themselves. Specialists, who invest the money into financial instruments like shares, bonds and other such assets, manage the funds, with an objective of earning returns for the investors in the form of dividends or capital appreciation or both.

Example:

A Few Indian Mutual Funds

Further Reading:

• Types of Mutual Funds
• What Is The Difference Between Dividend and Growth Fund. Which Is Better?
• What is an Exchange Traded Fund?
• How Frequent Changes to Mutual Fund Portfolio Affect Investor Interest?
• How to Choose the Right Mutual Fund to Invest?

Do Stocks Provide Hedge Against Inflation?

Investing in stocks certainly provide a natural hedge against inflation corroding the investment.

How come?

Historical data suggests that in the long term, meaning over 15 years, stocks give a return of over 15% compounded annual growth rate (CAGR). The BSE SENSEX which commenced its glorious journey on 1st April 1979 with a base value of 100 stands today, 8th September, 2016 at 29045. This translates into a CAGR of 16.57% in 37 years.

On the other hand inflation in India over the same 37 years stands at a CAGR of 8.17%. It is also to be noted that before the economic liberalisation in 1991 the inflation rates frequently used to be in double digits. However in the last 15 years governments have started taking inflation control seriously. Presently it is sought to be kept below 5% per annum.

From the foregoing it is clear that even after adjusting for inflation, stocks have given a real return of 8.40% CAGR, which is simply amazing. A sum of Rs.1,00,000 invested in BSE Sensex on 1st April 1979 would have become Rs.2,90,45,000 today!

In conclusion, there is no doubt whatsoever that stocks invariably protect the investment from erosion on account of Inflation.