Which Asset Class Is The Best For Long Term Investment In India?

27 Mar 2019by Research and Ranking

Which Asset Class Is The Best For Long Term Investment In India?

As a child, I remember my parents often discussing investing in property for achieving their financial goals like planning for retirement and generating a second source of income.  Because the kind of returns real estate was generating, was mind-blowing.

Imagine a flat purchased in Mumbai for few lacs in 90s selling for crores just a decade and a half later. Yes, that was quite a reality in not just metro cities like Mumbai, Chennai or Delhi but also across tier 2 and tier 3 cities in India which witnessed a phenomenal property boom from 2003 onwards till the global economic crisis caused a huge roadblock.

So, despite the fact that interest on bank fixed deposits and small savings schemes like post-office savings and Public Provident Fund (PPF) being quite high (in the range of 10-11%), most people who could afford it used to invest in real estate.

Property used to be the best long term investment in India. But not anymore.

The world of personal finance is filled with hundreds of diverse investment options for long term investment, which often makes investment confusing for investors.

Bank fixed deposits, gold, real estate and equities are some of the asset classes available for long term investment in India.

So what is the best asset class for long term investment in India?

Before we discuss that, let’s look at the various asset classes for long term investment in India.

Gold:
Indians have immense love for gold and love to buy it in any form, be it gold bars, gold coins or gold jewellery. We have always preferred to buy gold as a long term investment in India due to its history of high appreciation rate in the past, the financial protection it offers in difficult times, and the social status associated with it. However, gold does not generate any monthly or periodic returns like other investments. Additionally, there is always a risk of theft when one keeps gold at home. Bank lockers are not too safe either, because according to Reserve Bank of India (RBI), banks have no liability for loss of valuables in lockers. This means that a person who keeps his gold in a bank locker should not expect any compensation for theft. According to an article published by the Financial Express this harsh reality of bank lockers was revealed in an RTI response by the Reserve Bank of India and 19 public sector banks.

Real estate:
Real estate prices have appreciated by a huge margin during the period between the years 2004 to 2007.  After a brief full during the global economic crisis of 2008 to 2010, property prices picked up again and touched new highs till the year 2015. However, with the advent of the RERA regulation and demonetization in 2016, real estate sector became stagnant in the last one year.

Bank fixed deposits:
Bank fixed deposits are considered as safe investments but offer low returns which are not enough to beat inflation. Also, long term investment plans in bank fixed deposits are not tax efficient.

Equity:
Buying equity of a company means buying part ownership of the company. Equity as an asset class has given the highest returns to date among all asset classes in India. However, only 2% of Indians consider investing in equity, as a part of their long term investment plan. One of the major reasons why Indians don’t consider investing in shares for long term investment plan is the high risk associated with it.

Now that you have seen the various asset classes available for long term investment plan in India, it is the time to talk about the best performing asset class.

The below table will give you a clear picture of the best performing asset class for long term investment in India.



Source: Real estate: ibef.org. Gold price: GoldPriceIndia, For FDs rate: Reference rate is SBI interest rate  

From the above table, it is quite evident that equity is the best asset class for long term investment plan in India. Equity can not only beat returns offered by other asset classes, but also beat inflation and help you create wealth. For long term wealth creation, it is recommended to have equities as a part of your long term investment plan.

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