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Gold vs Real Estate vs Equity: Returns analysis since 2000

By Finserv MARKETS - Aug 24,2019
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Gold vs Real Estate vs Equity

Everyone has his or her preferred asset class. When talking about long-term investments as a means of wealth creation, many Indians swear by gold or real estate, while some attribute their gains to equity investments. These three asset classes — gold, real estate, and equity — are usually part of a diversified portfolio, and each has its own pros and cons as avenues of investment and wealth creation. Here’s a quick look at the kinds of returns that they have generated over the last two decades, and, all things considered, which may be the best avenue for you to invest in if you’re looking to maximize returns over the long-term with a low-risk profile.

Real estate

Real estate continues to be the most popular investment in India. That comes as no surprise: the annual return on real estate investment in the 23-year period between 1991 and 2014 was 20%. The significant gains on real estate investment over generations is the primary reason why Indians continue to place their faith in the sector as a means of wealth creation.

This is true even though real estate has witnessed a slump in the last few years. The 10-year average rate of return (2008-2018) was 15% in Mumbai, 10% in Bengaluru, 9% in Delhi NCR, 8.5% in Kochi, and 7% in Kolkata. However, the real estate sector is set to make a comeback thanks to a host of government reforms such as RERA and GST. With India’s first REIT (Real Estate Investment Trust) listing this year, the sector is open to retail investors for the first time, who can make lucrative gains on their investment without actually buying or selling property. Finally, with a boom in co-working spaces and the government’s push for affordable housing, real estate is set to become a trillion-dollar industry by 2030.

Gold

Gold is also a traditional mainstay in the investment portfolios of many Indian households. It is considered a safeguard against inflation as well as currency depreciation. It is also an asset class that does not experience high volatility, and can be used as risk diversification since its performance is not affected by that of equities. Between March 31, 2001, and March 31, 2016, gold generated an annualised return of 13.66%. While gold is a safe and stable investment, you should remember that it is an unproductive asset with no income-producing potential like real estate has.

Equity

Investing in equity can really multiply your wealth, and is considered the best-performing long-term investment. Nifty CAGR over a two-decade period was (1998-2018) was 13.4%, while over a ten-year period (1998-2008) it was 13.89%. Some of the best performing stocks have generated an annualised return of 20%. However, these returns are not steady on a yearly basis, and every year witnesses different performances and varied returns. Equity investments usually have higher risk attached to them than gold or real estate, and may give negative returns in a bad year. This is why, if you’re planning to put your money in equity, you need to plan it as a long-term investment.

If you’re someone who would rather not chance the stock market, but would like to invest in a low-risk asset with good, steady returns, real estate is the way to go. It is the overwhelming choice for most Indians — the average Indian household holds 84% of its wealth in real estate and other physical assets.

Though real estate is subject to its own ups and downs (as is any asset class), it is not correlated with the volatility of the stock market. Recovering from a slump, the outlook on real estate is bullish thanks to a slew of government reforms that have breathed new life into the sector.

What’s more: the tax benefits on real estate are unparalleled. Under Section 24 of the Income Tax Act, you are eligible for a tax deduction if you have taken out a house loan from any financial provider. For example, if you avail the Bajaj Finserv Home Loan, offered on Finserv MARKETS, to purchase, build, or renovate your home, you can claim deductions on the principal amount as well as the interest.

Under Section 80C of the Income Tax Act, you can claim up to Rs 1.5 lakh on the principal amount after the construction of the property is complete. For a self-owned property, you can claim up to Rs 2 lakh in tax deductions on interest; however, there’s no ceiling on how much exemption you can claim for a rented property. You also get additional benefits if you are a first-time owner investing in a property less than Rs 50 lakh.

With the Bajaj Finserv Home Loan, available on Finserv MARKETS, you can avail a loan for up to Rs. 3.5 crore to purchase or build your dream home, with interest rates starting as low as 8.8%. For a first-time homeowner, interest rates can be as low as 6.93%. If you’ve always wanted your own home — now’s the chance!

Get to know more about Equitable Mortgage Vs Registered Mortgage. You can also read more about how to enhance house loan eligibility.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!

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