Despite fixed deposits being preferred in India, the stock market – in both Indian and US markets – has historically delivered much higher returns than other asset classes like debt and real estate over longer tenures such as 10, 15 or 20 years. Although investing in equities can be risky in the short term, especially between six months to three years, they remain one of the best ways to build wealth in the long run. The special thing is that in the last two decades, gold has also given 15 times returns to investors. Let us also tell you that after all, shocking figures have emerged in the report.
How did different asset classes perform?
A recent report by Funds India found that the Indian stock market gave annual returns of 13.2 percent in 10 years, 11.3 percent in 15 years and 11.4 percent in 20 years. At this pace, investment would have increased approximately 3.5 times in 10 years, 5 times in 15 years and approximately 8.7 times in two decades.
US equities performed even better, giving annual returns of 19.4 per cent over 10 years, 19.8 per cent over 15 years and 15.2 per cent over 20 years, with money growing 5.9 times, 15 times and 17.01 times over the same periods.
In comparison, real estate gave returns of 5.6 per cent and 7.9 per cent over 15 and 20 years, and debt instruments gave returns between 7.5 per cent and 7.6 per cent over the same period.
Gold also gave excellent returns in the long run, giving 14.6 percent return in 20 years and increasing the investment by more than 15 times. However, even this good performance could not surpass the returns from US equities during the same period.
How has Indian equities fared in the last 35 years?
The report also states (citing the performance of the Nifty 50 index since July 1990) that over a period of more than 35 years, despite multiple market cycles, reforms and economic crises, Indian equities have delivered a compound annual growth rate (CAGR) of 13.2 per cent, increasing investment by nearly 86 times. That means, Rs 1 lakh became Rs 85 lakh in 35 years.
Which equity segments gave the best returns?
When a comparison is made between different segments of the Indian equity market – large cap, mid cap, small cap and flexi cap – it shows that while all categories have performed well over the long term, mid-cap and small-cap equities have stood the test of time and delivered higher returns, especially in the last 20 years.
Data shows that Nifty Midcap 150 TRI gave a return of 14.6 percent in 20 years, increasing the wealth of investors by more than 15 times. At the same time, Nifty Smallcap 250 TRI gave an annual return of 12.7 percent, due to which the money grew almost 11 times in the same period. On the other hand, large-cap equities, represented by Nifty 100 TRI, delivered annual returns of 11.8 per cent and grew wealth by almost 9 times in 20 years.
Patience pays off when investing in equity. As the investment period increases, the chances of getting negative returns reduce, while the chances of earning returns of more than 7-10 percent increase significantly. Historically, Indian equities have given consistent returns to those who have stayed invested for 7 years or more.
