Inflation is like a silent thief that slowly eats away the value of your money. You might think that having Rs 1 crore today makes you wealthy but in 25 years that same amount could be worth much less—possibly as little as Rs 25 lakh in terms of purchasing power. This happens because of inflation which increases the prices of goods and services over time.
What is Inflation?
Inflation is the rate at which the prices of goods and services increase over time. For example, if a basket of groceries costs Rs 1000 today with 6% inflation the same basket might cost Rs 1060 next year. Over time this adds up making everything more expensive. In India inflation typically ranges between 4% and 8% per year depending on economic conditions.
The value of money decreases as prices rise. This means your Rs 1 crore will buy less in the future than it does today. To understand how Rs 1 crore can shrink to Rs 25 lakh in 25 years we need to look at the concept of purchasing power and how inflation erodes it.
Understanding Purchasing Power
Purchasing power is the amount of goods or services you can buy with a certain amount of money. When inflation increases prices the same amount of money buys less. For example Rs 1 crore today might buy a luxurious car a house in a good area or fund a comfortable lifestyle. But in 25 years with rising prices that same Rs 1 crore might only cover basic expenses or a fraction of what it could buy today.
To calculate how inflation affects your money we use the future value of money formula adjusted for inflation. This shows how much your money will be worth in the future in terms of today’s purchasing power.
How Rs 1 Crore Becomes Rs 25 Lakh
Let’s assume an average inflation rate of 6% per year which is realistic for India. To find out how much Rs 1 crore will be worth in 25 years we use the formula for the real value of money after inflation:
Future Value (adjusted for inflation) = Present Value / (1 + inflation rate)^number of years
Here:
- Present Value = Rs 10000000 (Rs 1 crore)
- Inflation rate = 6% (0.06)
- Number of years = 25
So the calculation is:
Future Value = 10000000 / (1 + 0.06)^25
First calculate (1 + 0.06)^25:
- (1.06)^25 ≈ 4.291 (using a compound interest calculator or formula)
Now divide:
Future Value = 10000000 / 4.291 ≈ 2330000 (Rs 23.3 lakh)
This means that in 25 years with 6% inflation Rs 1 crore today will have the purchasing power of about Rs 23.3 lakh in today’s terms. In other words what Rs 1 crore can buy today you will need Rs 4.29 crore to buy in 25 years. Your Rs 1 crore will still be Rs 1 crore but it will feel like Rs 23.3 lakh because prices will have gone up.
If inflation is higher say 8% the value shrinks even more:
- (1.08)^25 ≈ 6.848
- Future Value = 10000000 / 6.848 ≈ 1460000 (Rs 14.6 lakh)
So depending on inflation Rs 1 crore could be worth as little as Rs 14.6 lakh or slightly more than Rs 25 lakh in 25 years.
Why Does This Happen?
Inflation affects everything—food, housing, education, healthcare and more. For example:
- A house that costs Rs 50 lakh today might cost Rs 2 crore in 25 years.
- School fees of Rs 2 lakh per year could rise to Rs 8 lakh or more.
- Daily expenses like groceries and fuel will also become much more expensive.
This is why Rs 1 crore which seems like a lot now won’t go as far in the future. The nominal amount stays the same but its real value (what it can buy) shrinks.
How to Protect Your Money from Inflation
The good news is that you can take steps to protect your wealth from inflation. Here are some simple strategies:
- Invest in Inflation Beating Assets
To maintain or grow your purchasing power invest in assets that give returns higher than inflation. Some options include:- Mutual Funds or Stocks: Equity mutual funds or stocks can give returns of 10–12% or more over the long term beating inflation.
- Real Estate: Property prices often rise with or above inflation though it requires careful selection.
- Fixed Deposits or Bonds: These are safer but may offer lower returns so choose ones with rates above inflation.
- Diversify Your Investments
Don’t put all your money in one place. Spread it across stocks, mutual funds, gold and fixed-income options to balance risk and returns. - Start Early
The earlier you invest the more time your money has to grow through compounding. For example investing Rs 10 lakh at 10% annual return for 25 years can grow to over Rs 1 crore helping you beat inflation. - Consider Inflation Linked Bonds
Some government bonds like Inflation-Indexed Bonds adjust their returns based on inflation protecting your moneys value. - Plan for the Future
When saving for big goals like retirement or your child’s education account for inflation. Estimate future costs and save accordingly.
Conclusion
Inflation is a reality we can’t ignore. It can reduce the value of your Rs 1 crore to Rs 25 lakh or less in 25 years making it harder to maintain your lifestyle or achieve your goals. By understanding how inflation works and taking smart steps like investing wisely you can protect your money and even grow it. Start planning today diversify your investments and choose options that beat inflation to ensure your Rs 1 crore retains its true value in the future.