How Inflation Impacts Your Savings and Investments in India

Introduction

Let’s be real. Nobody likes losing money. In fact, losing a little often feels worse than gaining a lot feels good.

Picture this: you find ₹8,000 on the road. Feels nice, right? Now imagine losing that same ₹8,000 from your wallet. Ouch. The second one hits way harder.

That’s the idea behind loss aversion. It’s not some textbook jargon it’s human nature. And it shows up all the time when we invest.

Why We Cling to Losers (and Dump Winners Too Soon)

Say you bought a stock for ₹500. It slips to ₹350. Common sense says, sell it and move on. But your heart says, “Wait. Maybe it’ll come back.” So you hold.

On the flip side, you buy another stock, it jumps 20% in a few weeks. Instead of riding the wave, you panic: “What if it crashes tomorrow?” You sell early. A year later, you regret it because the stock doubled.

That’s loss aversion in action. Fear of losing makes us hold on to duds, and fear of losing profits makes us exit too quickly. Either way, our decisions suffer.

How This Plays Out in Real Life

Remember March 2020? When COVID hit, the Sensex nosedived by over 35% in days. A lot of small investors sold everything in panic. Can’t blame them it felt like the end. But within months, the market bounced back stronger. Those who held their nerve, or even invested more, ended up miles ahead.

Or take Infosys back in the ’90s. Some early investors were thrilled to double their money and sold. Fair enough. But the ones who stayed for decades? They built life-changing wealth. The fear of “losing gains” cost many people big opportunities.

Fear Sometimes Pushes Us Into Risk

Here’s the twist: fear doesn’t always make us cautious. Sometimes it makes us reckless.

Think of a gambler chasing losses. Investors do the same. Stock goes down 20%? Instead of cutting their losses, some throw in more money just to “break even.” That’s not discipline. That’s desperation.

And usually, it makes things worse.

Trained traders don’t fall for this trap as much. They’ve learned to cut and move on. For everyday folks, though, money feels personal  which is why we struggle.

How to Keep Loss Aversion in Check

You can’t erase this instinct. It’s hardwired. But you can manage it.

• Diversify – Spread money across stocks, debt, gold, maybe real estate. A single loss won’t sink you.
  
  

• Set rules before you invest – Decide when you’ll sell a stock or rebalance your portfolio. Don’t wait till panic sets in.
  
  

• Use SIPs – Investing regularly builds discipline and keeps you from overthinking.
  
  

• Automate – The less room emotions have, the better.
  
  

Think of these like seat belts. You still face bumps, but you’re protected.

The Hidden Lesson in Losses

Here’s something we don’t talk about enough:losses teach.

Ask any seasoned investor. They all have scars. Maybe it was buying a tip that crashed. Or panic-selling during demonetization. Or holding junk shares from the Harshad Mehta era. Those mistakes hurt but they build discipline.

Instead of dreading losses, think of them as tuition fees. Money spent on learning. Painful, yes. But valuable.

Loss Aversion vs. Risk Aversion

Quick distinction:

• Risk aversion – You prefer safe FDs to risky stocks. That’s about comfort.
  
  

• Loss aversion – Different. You can handle risk, but when you actually see a loss, you freeze. You cling to losers or make rash bets.
  
  

One is about avoiding uncertainty. The other is about how your brain reacts when red numbers show up.

Why It’s Bigger in India

With millions of new retail investors entering through trading apps, this bias shows up everywhere.

One bad headline, and WhatsApp groups light up: “Sell now, market’s crashing!” Panic spreads. People sell good stocks for no reason.

During bull runs, it flips. FOMO takes over. Folks buy blindly, worried about “missing out.” Both are just loss aversion in disguise  fear of losing what you have, or fear of losing what others are gaining.

Small Hacks That Actually Work

Some things you can try right now:

• Write down your goals – Saving for your child’s college in 2035? Then today’s dip won’t rattle you.
  
  

• Check less often – Looking at your portfolio every day magnifies tiny losses that don’t matter long term.
  
  

• Look back at history – The Sensex has crashed many times  2008, 2020  but the long-term direction has always been up.
  
  

• Talk it out – Sometimes a calm advisor (or even a friend) can stop you from hitting the panic button.
  
  

Final Thoughts

Loss aversion is sneaky. It makes us hold losers too long, sell winners too early, or even gamble more when we shouldn’t. But once you notice it in yourself, you can fight it.

Spread your money. Stick to SIPs. Automate decisions. Play the long game. That’s how you beat the bias.

And remember it’s not just psychology. Systems matter too. That’s where SRE comes in. With reliable depository services, smoother settlements, and compliance-first systems, SRE helps cut the risks you can’t control. That frees you to focus on the choices you can control.

Losses will always sting harder than wins feel good. That’s human. But with the right mix of planning and discipline, you can turn that weakness into an advantage.