Purchasing power

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• Capital appreciationThe gain made when the market value of an investment rises above what you paid for it — as distinct from income, which is the interest or dividend the investment pays you along the way.
• InflationA sustained general rise in the price level, which erodes what a rupee buys — and the reason a nominal return has to be deflated before it means anything.
• InvestmentThe current commitment of savings for a defined period, in the expectation of receiving back more than was committed — savings put to work, as distinct from savings merely held.
• LiquidityThe degree of ease with which you can turn an investment back into cash at a fair value — one of the three pillars of investing, alongside safety and return.
• Net worthEverything you own minus everything you owe — the one number that says where a household actually stands, and the starting point of any financial plan.
• Real rate of returnThe return on an investment after the effect of inflation has been removed — what the money actually buys more of, as against the nominal percentage the product advertises.