Does inflation matter for mutual fund investments?

Investors tend to underestimate inflation. But it is to be understood that while investing inflation does matter. Inflation indicates a sustained increase in the prices of goods and services over the period of time. It reduces the purchasing power of a rupee. Let’s think hypothetical if you had planned to buy a house in 2012 in a particular locality costing Rs. 30 lakhs then and if you deferred your purchase to 2018 then the cost of purchasing a house in the same locality is now Rs. 50 lakhs i.e. 66 per cent increase. So this means that now you would require Rs. 50 lakhs to purchase the same property you would have bought for Rs. 30 lakhs six years back. But there are some exceptions to this rule, i.e. electronic items, vehicles, etc.
 
CPI (Consumer Price Index) is one of the indicators used to judge inflation. Currently, the rate of inflation in India is around 4 per cent. But this is just the general indication, if we add the prices of essential everyday needs then the individual inflation is much more. For instance, in five years healthcare costs would be increased by around 30 per cent i.e. on an average 5.39 per cent every year which is more than that of general inflation.
 
So while investing in mutual funds or for that matter any other investment, it is very important to factor inflation and also it is important to link your investments to your financial goals and factor individual inflation which would help you give a better picture.