What is the role of inflation in long-term savings?

Inflation can have a significant impact on longterm savings as it can erode the purchasing power of your money over time. This means that the money you save today may not be able to buy the same amount of goods and services in the future due to the increase in prices over time.

For example, if the inflation rate is 5% per year and you have saved ₹100,000 in a longterm savings account that earns an interest rate of 2%, your money's purchasing power will decrease over time. After one year, your ₹100,000 will be worth ₹102,000 with interest, but due to inflation, the cost of goods and services will have increased by 5%, meaning that you will need ₹105,000 to buy the same amount of goods and services as before.

To counter the effects of inflation, it is important to invest your longterm savings in assets that have the potential to earn higher returns than inflation. This may include stocks, mutual funds, and real estate. It's also important to regularly review and adjust your savings plan to account for changes in inflation rates over time.