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Financials Assets Continue to Outperform Physical Assets in Terms of Returns in 2019

By Finserv MARKETS - Dec 19,2019
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Financials assets continue to outperform physical assets in terms of returns in 2019

Historically, Indians have preferred to save their money in cash for reasons ranging from mistrust of the financial institutions to ease of access. However, with financial literacy, the preferences are changing and Indians are choosing to invest in financial instruments too rather than just put money in real estate or physical gold.

Around 73.2% of assets held by individuals were distributed across equity, fixed deposits, and insurance, according to the India Wealth Report. This trend is driven in part by the superior returns that financial assets have given over the past year as compared to physical assets.

Before we dig into the details, it’s important to differentiate between physical assets and financial assets.

Financial assets: Financial assets are a highly liquid form of assets that are in cash or equivalents of cash which can be converted to cash quickly. These include investment instruments such as stocks, bonds, mutual funds and other securities. The major defining feature of financial assets is that it comes with a predefined monetary value which can be easily realised. The asset, however, lacks intrinsic value in itself. For instance, a stock of a company is ownership stake in the company valued at the market price but as a share certificate, it’s pretty much worthless.

Physical assets: Physical assets or real assets, on the other hand, are those physical assets which generate value over a period of time to an individual or a business. These assets could include land, plant and machinery, ships and other infrastructure or commodities like physical gold and silver. These are different from financial assets because they have an intrinsic value and don’t depend on markets to provide value to their owners.

The proportion of Indians investing in financial assets is steadily rising year on year. It reached 60.95% in Financial Year 2019 as compared to 58% in the previous year. This proportion is made up of Rs 262 lakh crore of individual wealth which has gone into mutual funds, equity and other similar assets. If you, too, are looking to grow your wealth, mutual funds on Finserv MARKETS are one of the most lucrative options. On Finserv MARKETS, you can invest in mutual funds with 0% commission, avail exclusive offers based on your risk appetite and investment goals and even pick the brains of experts to get personalized insights into your investment portfolio.

The total individual wealth in India is estimated to grow at a compounded annual growth rate of 13.19% to reach around Rs 800 lakh crore and the allocation to financial assets is estimated to be 66.11% by the year 2024, according to the report.

Higher returns

The wealth created by financial assets rose by 10.96% in the last financial year as compared to physical assets which grew by 7.59%, Karvy’s report said. This is perhaps why investors are flocking to financial assets. Here’s a break up:

Financials assets continue to outperform physical assets in terms of returns in 2019
As seen above, cash is still the king but the proportion flowing into mutual funds, equities and insurance products are rising just as fast. This bodes well for the economy as investments in financial assets channel money to productive industries and leads to wealth creation across the country. Investments in financial instruments like ULIPs are also becoming increasingly popular – ULIPs have a two-pronged approach and provide both insurance and investment. On Finserv MARKETS, based on your needs, you can take your pick of the variety of ULIP options available, including Child Plans, Retirement Plans and Investment Plans. With an array of such investment options at their disposal, it’s no wonder that more and more Indians are looking to financial instruments to grow their wealth.

This is largely due to the returns provided by the financial assets. For instance, the annual average of indices BSE Sensex and Nifty was 38673 and 11,624 for FY 2018-19 as compared to 32,396 and 10,424 for FY 2017-18 respectively. This translates into an average return of 17% for Sensex and 15% for Nifty for investors which are significantly high even for moderately risk-taking investors.

At the same time, employee provident fund has been giving consistent returns of above 8% on all investments, apart from being tax-exempt at all stages.

Compare that to real estate which has been in the dumps due to liquidity crunch as inventory has risen without sales taking off. This has led to downward pressures on prices and those who bought property for speculative purposes are hard-pressed to find buyers at prices just to break even. Similarly, physical gold is another unproductive investment as it doesn’t contribute to long-term value creation and a lot of deductions in terms of making charges and other hidden costs occur when one tries to sell it back.

From the above analysis, it is clear that the future is financial assets when it comes to Indians investing their money and with the $5 trillion economy target set by the government, it is probable that more and more people will seek to invest their money in high-growth investment instruments.

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