Vijay Gwalani

Perfect Hedge

While you were saving for the rainy days, the cost of bread only got dearer than the returns you made on the savings. Layman in India broadly sees three avenues when it comes to saving / investing his hard earned surplus income

Stock Market / FDs in banks / Real Estate

What does one consider when choosing from the above?

But what we don’t really look at in MEHANGAYI. INFLATION. Have we, while investing covered the growing inflation. Read along to understand better.


While stock markets are extremely tempting and we read that they churn out a lot of billionaires, what we don’t read about is the losses, bankruptcies, and suicides that come as the dark side of these markets. In my tenure of 22 years in commercial markets I have witnessed not just losses but capital eroding more than just once:

Apart from these huge jolts, several stock-specific issues/ scams that have time and again eroded investor capital is a phenomenon not hidden from anyone. In short, we put our hard-earned money, which we amass by saving our pennies by compromising our desires, in the hands of someone else who we believe is doing good and will make money for himself/ herself and us through his/ her business, and we hope he/ she is going to be integral forever and that all the external forces influencing this company we have invested always remain favorable to the business.



So, we as docile and modest people look at FDs as an option, to secure our wealth and liquidity, giving us modest returns of a mere 5 percent currently, which obviously comes with income tax deduction. Has anyone ever considered inflation (MEHENGAYI in Hindi) while investing??? Let us assume we put one lakh in an FD on 1 st Jan 2022. On, 31 st Dec 2022, the amount is one lakh and five thousand. As much as we have more money in our account, have we ever seen where the cost of living has gone in that one year?

Let me give you an example:
Sunday, June 12th , 2022 (Extract of the Times of India, Mumbai) BREAD PRICES RISE BY Rs. 2-5, SECOND TIME IN 5 MONTHS (Extract of Times of India, 12th June, 2022) The 800 grams of Wibs loaf used at the roadside sandwich stall now costs Rs. 70 from Rs. 65 as on June 12 th , 2022. The last increase had happened in Jan 2022, when the same loaf jumped from Rs. 60 to Rs. 65. Basics like bread in a mere six months have gone up over 15 percent, against our investment going up by a mere 5 percent, that too pre income tax. It means we are poorer in our wealth by 10 percent, given the hedge over the Consumer Price Index (namely cost of living)

What does that mean? It means from the commercial logic, we were better off spending the money in Jan 2022 then saving it, as post saving in Jan 2023, we won’t get that same bread.

Some other classic examples:

And the list is endless from electricity tariff, fruits, vegetables and whatever you can think of.

What’s the point of being in a space where slow death is inevitable?


Real estate covers the capital erosion threat of Stock Markets and the safe but minimal return theory of Bank Fixed Deposits. It clearly is a more informed decision than the stock market as we are buying a more tangible asset. We see it, and if our decision is Prudent and Informed (my blogs cover these micros in How to Buy a Good Real Estate) we definitely have our hedge over our biggest concern, Inflation. Needless to say, unlike the stock markets, the scope of capital erosion is marginalized. Similarly, as safe as it is, the returns on Bank FDs is minimal. At 5 percent per anum, in no way hedge enough to tackle growing inflation. Real estate covers the failure of inflation over the Fixed Deposit rate of interest.

How does this happen: The only thing that runs hand in hand with growing inflation is REAL ESTATE. Brick, mortar, steel, fuel, labour, interest cost and every ingredient that goes into construction hedges your investment, and what’s more, you aren’t taxed till you actually sell.

Below is a layman’s logic of how real estate investment over the long term does not play spoilt sport in regards both inflation and appreciation on investment making it a sounder and safer investment.

The bungalow you constructed for 50 lakhs five years ago will not cost the same today. Someone who wishes to construct a similar bungalow today will pay much more as cost of raw materials and labor due to the rise in prices of raw materials. This is your hedge over growing inflation we are talking about for one.

Land costs go higher for several reasons. Government bettering infra, job creation around your area, growing neighborhood (my blogs cover these micros in How to Buy a Good Real Estate). This is what we typically term as appreciation. The rise in price is due to demand for a certain product, which surpasses the supply and gets you a price rise called appreciation, a by-product of demand and supply.

Finally, as an investment, we don’t keep the bungalow idle. We rent it out and get at least 2 to 3 percent net return per annum (my blogs cover these micros in How to Buy a Good Real Estate). This is the instant gratification, generally equivalent to minimum FD returns, real estate offers, no matter what phase broad commercial markets are in.

What is more important is that you own the asset and are actually driving your investment. You are the one who will take and informed decision of product, location, builder before buying what you buy and you are the one who would rent it to the right user at the right price. Finally, you will decide, what price you want to sell it for.

It’s a writing on the wall. In the current time and era,

Hence, I say, Inflation is a rising concern, Real Estate our only hedge.