Question

Explain the effect of inflation on the investors.

Answer 1

1. Inflation has a mixed effect on the investors. Investors in fixed interest-earning assets (like bonds, debentures and deposits) are the losers, whereas investors in shares of the companies tend to gain during inflation.
2. Small investors who invest their money in bonds, debentures and deposits with the commercial banks tend to lose because they receive only a fixed interest income from such investments.
3. On the other hand, investors in shares tend to benefit because they get more dividends on account of high profits made by joint stock companies during inflation.