Inflation Risk

Inflation risk is a systematic risk that is not transparent. It exists in the overall system and cannot be avoided.

- Gaurav Mashruwala

Sakina, a young college teenager, had saved ₹15,000 from her pocket and from the gifts she had received on her last birthday. She was keen on purchasing that latest mobile handset. However, her mother advised her to refrain from doing that and instead open a fixed deposit. She was told that after one year, value of the fixed deposit will be ₹16,000, from which she will be able to purchase the handset she wanted to buy. She could also splurge on a branded shirt. Sakina agreed. After one year, when she received ₹16,000, cost of the handset similar to the one she wanted had increased to ₹17, 250. Sakina was unhappy. She delayed her purchase assuming that she would be able to afford it after placing her savings in a fixed deposit.