Measuring the so-called devil :Inflation!

Inflation is measured as the percentage rate of change of a price index (measure of average level of prices) over a particular period of time; normally a year. Inflation is measured by change in weighted average of prices of a basket of goods. It is measured by finding out the change in existing price over base year prices:   

        (P₁-P₀)/P₀ x 100

It means that if inflation for a particular week is say 10%, it means the index is 10% higher, than it was in the same week during the previous year.

 Inflation is calculated using the following methods:

1)     Consumer price Index ( CPI)

2)     Whole Sale price Index ( WPI)

3)     Cost of living index

4)     Producer Price index (PPI)

5)     Capital Goods Price Index

6)     Commodity price index

7)     GDP Deflator

 In this article, I shall talk about the two most important price indices in India and they are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

Consumer Price Index and Wholesale price index (CPI and WPI)

 

Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. Most of the major developed economies like US, UK, Japan, France, Singapore and even our arch rival China have selected CPI as its official barometer to weigh its inflation.

 WHY WPI IS PREFERRED TO CPI IN INDIA?

Read more at …Measuring the so-called devil :Inflation!

The Obscurities of Inflation

Once two friends were having dinner in a restaurant. Frustrated by her friend’s opinions about past events, she complained, “You are always living in the past!” Soon came the reply- “It’s a lot cheaper dear!”

To put in simple words, Inflation is a state in which the value of money falls .i.e. prices rise.Inflation is rise in the general level of prices of goods and services in an economy and fall in the purchasing power. It means that as inflation increases, you can buy lesser % of goods/services with each Re. For instance, if the inflation rate is 5%, then a shampoo worth Rs. 50 will cost me Rs. 52.5 in a year. Inflation is the increase in the supply of money and credit. So demand increases, but supply doesn’t increase in proportion. (Too much money chasing too few goods). Most countries’ central banks will try to sustain an inflation rate of 2-3%.

How severe is this inflation? Let’s see… The Obscurities of Inflation

Objectives of Portfolio Management

There are seven objectives of portfolio management:

Return

Portfolio management is technique of investing in securities. The ultimate object of investment in the securities is return. Hence, the first objective of portfolio management is getting higher return.

Capital Growth

Some investors do not need regular returns. Their object of portfolio management is that not only their current wealth is invested in the securities; they also want a channel where their future incomes will also be invested.

Liquidity

Some investors prefer that the portfolio should be such that whenever they need their money, they may get the same.

Availability of Money at Pre-decided Time

Some persons invest their money to use it at pre-decided time, say education of children, etc. Their objective of portfolio planning would be that they get their money at that time.

Favourable Tax Treatment

Sometimes, some portfolio planning is done to obtain some tax savings.