IF the bull run during the last few years had encouraged retail investors to shed their apprehension regarding equities, the subsequent downturn has made them retreat to traditional safe havens like gold and fixed deposits. While it’s not surprising, this short-term view may prove to be detrimental when investing for a long-term goal such as creating a retirement corpus, which necessitates an investment horizon of at least 15-20 years.
For those who are comfortable with this kind of horizon, there is no need to look beyond equities, as it is the ideal wealth creation tool, feel market experts. As per data provided by IDFC Mutual Fund, top-rated diversified equity funds have outperformed other asset classes over a period of 15 years. Between January 1994 and January 2009, they delivered a return of 14.22% against 6.09% from gold, 8.64% from fixed deposits and 9.97% from real estate.
Equities have always earned a premium over other investments options over a longer period of time. Historical data shows that since 1979, if an investor had invested (in Sensex) at the beginning of any financial year and held on to it for at least 12 years, then he/she would not have lost money. This apart, equities also offer tax benefits and the level of transparency is much higher, with valuations being reported on a daily basis.
Equities Vs Fixed Deposits
While both returns and capital are guaranteed in the case of fixed deposits, the returns may not be capable of beating inflation.
Logically, equities have to perform better than FDs. After all, the money invested by you in an FD is lent by the bank to entrepreneurs, who repay the loan out of their profits. No company will pay a rate of interest higher than the profits made, which means that if you had invested directly into the business (bought shares of the company), you would have earned a better return.
Equities Vs Gold
Equity cannot eclipse the yellow metal’s shine when it comes to safe and steady returns, but it has a slight edge in terms of liquidity. Since most Indians prefer to invest in gold in the form of jewellery rather than bars or coins, they are emotionally attached to their gold possessions, and hence are unwilling to part with the same.
Equities Vs Real Estate
Real estate offers investors the dual benefit of providing shelter and appreciation in value. However, it’s not easy to buy property in the physical form in India as affordability is a huge constraint. Besides, real estate is a relatively illiquid asset, while purchase and sale transactions in equities are far simpler.