There was an interesting article in the ‘Mint’ newspaper on 21st November 2015 which read ‘225-fold increase in minimum pay of central government employees in the last 56 years’. The article detailed the suggestions of the 7th pay commission which had recommended increasing their minimum pay by 2.57 times from Rs.7000 per month in 2006 to Rs.18,000 from 1st January 2016. If Rs.7000 was raised by about 10% since 2006, it would touch Rs.18,000 in 2016. Here 10% is the CAGR or compounded annualised growth rate in financial parlance.

If we travel back in time, the 2nd pay commission had recommended a minimum pay of Rs.80 per month in 1959. So in 56 years, the central government employees’ salaries would grow by 225 times (if the recommendations are accepted). Though this number looks huge, the CAGR is only 10.16%.

Generally, the minimum expectation from a salary hike is that it should at least beat inflation. If it is not able to beat inflation, then obviously we are able to save less. For example, if salary is Rs.100 and expenses are Rs.90, we save Rs.10. But if salary grows to Rs.105 and expenses grow to Rs.96, then we save only Rs.9.

While the quantum of salary hike may not be in our control, an alternate way to beat inflation is to look for better returns from our savings by investing in the right instruments. All of us have heard the story of David and Goliath. It is a biblical account where David symbolizes anything ‘good’ though not physically strong while Goliath is strong and ‘evil’. Just like David defeated Goliath in the fight of the ‘good’ vs ‘evil’, we need a David to defeat the Goliath of inflation.

A SIP or a systematic investment plan can be your ‘David’. A SIP in an equity mutual fund has the potential to beat inflation. In India, average inflation has been about 8.5%¹ over the past 10 years while equity mutual funds (represented by the CRISIL-AMFI Equity Fund Performance Index) have returned 14.72% returns for the 10 years ended September 30, 2015 (much more than inflation). You can start a SIP for as ‘little’ as Rs.500 per month. Enroll for your SIP today and help little David beat the mighty Goliath once again.

SIP for as ‘little’ as Rs.500 per month. Enroll for your SIP today and help little David beat the mighty Goliath once again.

Use online SIP Calculator to calculate returns on your investment.

¹Source - http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx