Home Financial & Banking Terms What is Capital Preservation?

What is Capital Preservation?

Capital Preservation

Capital preservation is an investment object when one wants to preserve the capital and not lose on its principal value. This type of investments is suitable for the risk averse investors. It can also mean that the purchasing power of the money is taken care of even after inflation. So, if you can buy 1 kg of wheat at Rs. 20 today and by properly investing that Rs 20, you can still buy that 1 kg wheat, you can safely say that you have managed to preserve your capital. So capital preservation can imply two things, one is that the principal amount is preserved and the other is that the purchasing capacity of the principal amount is preserved.

Capital Preservation Investments

Investing in Bonds, Treasury Bills, bank deposits, government deposits, post office savings scheme are low risk and ensures that the original amount is preserved but it is difficult to predict whether the interest the is enough to nullify the inflation rate. So, whether they are able to preserve the capital depends on how one defines capital preservation.

Capital preservation is particularly suitable for senior citizens, emergency funds and in cases where you just can’t afford to bear any type of loss, except inflation loss.