Certain funds are also created to protect investors from the negative effects of inflation. These funds focus on investing in securities that bring a real return, which is the return on an investment, minus the reduction in its value as a result of inflation. These funds also invest in bonds backed by the federal government. The funds' principal is adjusted quarterly based on the current inflation rate.
The Treasury Inflation Protected Securities (TIPS) is an example of this. The principal portion of this security increases with inflation and decreases with deflation in accordance with the Consumer Price Index (CPI). At maturity, the adjusted or original principal is paid; whichever amount is higher.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Inflation-Protected Annuity - IPA — An annuity investment that guarantees a real rate of return at or above inflation. The real rate of return is the nominal return, less the inflation rate, thus protecting annuitants and beneficiary investors from inflation. Inflation protected… … Investment dictionary
Inflation-Protected Security - IPS — A type of fixed income investment that guarantees a real rate of return. The real rate of return is the nominal return, less the inflation rate, thus protecting investors from inflation. The purchase of IPS products is most often done with… … Investment dictionary
Treasury inflation-protected securities — ( TIPS) Securities issued by the U.S. Treasury that provide inflation protection to investors. These securities have a fixed coupon rate and maturity date. However the interest payment is based on a principal amount that is adjusted semiannually… … Financial and business terms
Treasury Inflation Protected Securities - TIPS — A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low risk investment since they are backed by the U.S. government and since their par value… … Investment dictionary
Inflation-indexed bond — Inflation indexed bonds (also known as inflation linked bonds or colloquially as linkers) are bonds where the principal is indexed to inflation. They are thus designed to cut out the inflation risk of an investment. [ Unfortunately, income taxes… … Wikipedia
Inflation derivatives — In finance, inflation derivatives (or inflation indexed derivatives) refer to over the counter and exchange traded derivatives that are used to transfer inflation risk from one counterparty to another. Typically, real rate swaps also come under… … Wikipedia
Inflation-Linked Bond — Inflationsindexierte Anleihen (auch Inflationsanleihe, inflation linked Bond, kurz Linker, Inflationsbond oder Inflation indexed bond genannt) sind Wertpapiere, deren Kupon und/oder Nominalwert an einen Verbraucherpreisindex gekoppelt sind. Das… … Deutsch Wikipedia
inflation — in|fla|tion [ ın fleıʃn ] noun uncount *** 1. ) an economic process in which prices increase so that money becomes less valuable: Your pension is protected against inflation. inflation rate/rate of inflation: The inflation rate is 3.2%. high/low… … Usage of the words and phrases in modern English
inflation */*/*/ — UK [ɪnˈfleɪʃ(ə)n] / US noun [uncountable] 1) economics an economic process in which prices increase so that money becomes less valuable Your pension is protected against inflation. inflation rate/rate of inflation: The inflation rate is 3.2%.… … English dictionary
protected — protect pro‧tect [prəˈtekt] verb [transitive] 1. to keep someone or something safe from harm, damage, bad influences etc: • laws protecting the rights of disabled people • P&G wants to protect its $180 million investment by obtaining a 10 year… … Financial and business terms