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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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37 years of performance: Sensex, Fixed Deposits, Gold and Silver

Posted by Muthu on April 2, 2016

For the last 5 years, I’ve made it a practice to give performance comparison of various asset classes: Sensex (Equity), Fixed Deposit (Debt), Gold and Silver and the impact of inflation on them beginning from the financial year 1979-80. Why 1979-80? That is the year from which Sensex came into existence with base as 100.

Please find attached 3 files

a) 37 years return- FD & Sensex

b) 37 years return- Gold & Sensex

c) 37 years return- Silver & Sensex

1) Assume you’ve invested Rs.1 lakh each in FD, gold, silver and Sensex 37 years ago. As of 31’st March 2016 the value is as follows- FD: Rs.19.75 lakhs, Gold: Rs.36.53 lakhs, Silver: Rs.24.46 lakhs and Sensex: Rs.2.53 crores.

2) Unlike other assets mentioned above, Sensex has dividend yield in addition to capital growth. Assuming a dividend yield (duly reinvested) of 2% on an average, the Sensex return works out to Rs.4.76 crores.

3) To put it another way, during last 37 years:

Fixed Deposits has multiplied wealth by 20 times

Gold by 37 times

Silver by 24 times

Sensex by 253 times

4) In terms of percentage, the 36 years return (as given above) is as follows- FD: 8.39%, Gold: 10.21%, Silver: 9.02% and Sensex: 16.13% (18.13% if dividend yield is as assumed above)

5) When we talk about returns, we’ve to talk about inflation too. The average annualized inflation for the above period is 7.67%.

6) If Rs.1 lakh has been kept under the mattress instead of being invested, it’s value has come down to mere Rs.5208 (i.e.) purchasing power of rupee reduced by whopping 95% over 37 year period.

7) What we should look for is real returns (i.e.) returns after inflation and taxes. Since tax differs from each asset class and income category, I’ve taken only inflation and excluded taxation. Inflation is common for all.

8) After adjusting for inflation, the asset classes have grown by following annualized rate in real termsFD: 0.72%, Gold: 2.54%, Silver: 1.35% and Sensex: 8.46% ( 10.46% including dividend yield). These numbers matter a lot. This is what our wealth would have grown after adjusting for inflation. Since we know the tax details for each asset class and for our income, we can work out the return after taxes too. FD would automatically turn negative. Gold and Silver would have provided a negligible return. Only equity would have provided a real rate of return of around 9%.

9) Gold’s real rate of return of 2.54% is made possible due to rupee significantly depreciating between 1980s to early last decade. Otherwise we might have got even a negative return; as globally gold fell by around 70% during the above period. I’ll explain this by example. Assume the rupee dollar conversion rate is 1 USD = Rs.65. For illustration purposes, let us assume the price of 1 gram of gold is 1 USD. With the above conversion rate, the value of 1 gm of gold is Rs.65. Imagine a scenario when rupee depreciates by 100% (i.e.) 1 USD = Rs.130. The gold price remains the same at 1 USD. The value of our gold would increase by 100% to Rs.130 though the price has not changed in the international markets and we being the net importer of gold.

10) Please use FD for contingency or emergency funds. Let gold be part of social requirement and not exceed 5% to 10% of investment portfolio. Silver is again part of only social or cultural needs. Equity is for building wealth.

11) Real estate would normally give returns better than fixed deposits but lesser than equity. There is no reliable long term data available for real estate. From what I understand from reading, in the long run, real estate can be expected to give 2% to 3% more than inflation. If inflation is 6%, we may expect a long term price growth rate of around 9%. By providing 16% for nearly 4 decades, equity has scored well over real estate.

12) Please go through the workings and assumptions in the attached files. I’ve tried my best. It may not be perfect but would be a useful pointer. Request your opinion and feedback.

24 Responses to “37 years of performance: Sensex, Fixed Deposits, Gold and Silver”

  1. Ashok Kale said

    I have not read the complete article but the topic is quite loud and clear. How ever do you think it is pragmatic and practical for a common man to keep invested for 37 years? After post graduation and that is minimum required now at the age of 24 years, he can serve up to the age of 58 years and that is 34 years of service. Do you think it is practical that he will not require this fund invested from his first salary for 34 years. You people write in isolation without ubderstanding the ground realities. Statistics have zero meaning if it is not relevant. Sorry to be blunt.

    • Siddesh said

      Ashok, that’s the same case irrespective of wherever the investments are made. Needs for a family arise (planned or unplanned) anyway. This article talks only about a comparison of what is better and what not. Hope you

  2. Babu said

    Good Analysis. Fully agree with your recommendations. Understand that equity is for long term.

  3. bharath said

    Excellent Artice!!

  4. Ravi said

    It would be nice, if the returns are also give on a tax adjusted basis

  5. NITIN BAXI said

    Very informative and worth sharing with the needy investors because everybody and especially the retired people are very much dependent on FDs only because it gives a secured return. Equity as you said gives very good return in long term so one should always dare to invest in equity ( if not direct through mutual funds) with a long perspective so that he can increase his wealth.

  6. P.R.RAVINDRAN said

    I totally agree with your analysis. Nothing to beat Equity. But…..

    – For those who entered the market later – the returns could be different depending on when they entered.
    – Your article perhaps is applicable for those who are now in their 60’s – with 37 years of career behind them. They can regret now,if they had not invested a penny.
    – It would a good addition to your article, if you give a table for all asset class, the returns depending on year of entry say from 1979., since lot of things have changed post the tech era-

    – Further for the individual investor, he can achieve the sensex returns only if he invests in all the sensex companies in the same proportion of sensex

    Other-wise investing in specific companies he can either loose or gain

    Further in the case of real estate, again the returns could be entirely different – both in terms of year of entry and the area or location. In Chennai I know , for sure , people very good returns post IT boom when the real estate market boomed.

  7. Mukesh C Jha said

    Good Article

  8. K K Patel said

    Very informative, interesting and eye opening

  9. Sid said

    Good data. But I defer with the conclusions. If 91-92 is taken as the base, gold has tracked the sensex returns. Actually outperformed sensex as of today by around 10%. Gold has been the haven in times of global financial-currency crisis. India’s black money economy still imports huge quantities of it. Corruption is here to stay. Go for GOLD.

    • Very informative article, it’s true that Sensex has delivered better returns as compared to other assets class,it’s necessary for the common man to stay invested, not to loose the mind

      • Again lam a invester in share market since last 9yrs through sip,delivering good returns whiteout much headache, no need to look after the asset class unlike land,gold,real estate where there is no record available.

  10. C K Nagar said

    Thanks,I am now better informed after reading this article. Investment in stocks is definately a better option than presious metals or deposits.I would have been more happy if real estate had also been cosiderd as an instrument of investment.

  11. […] 37 years of performance: Sensex, Fixed Deposits, Gold and Silver […]

  12. Raju said

    Sir, it is good comparison. Thank you. One aspect which I was thinking is – govt published inflation and real inflation that the people go through in life (Like education fee, hospital charges etc), I guess it might not get accounted in the WPI/CPI index (If yes, sorry for the ignorance). I think that inflation will be higher than the WPI/CPI and how do we we find ways to grow the money above that. Any thoughts will be helpful

  13. P.R.RAVINDRAN said

    Is there an update on this article. With Sensex going beyond 33000 and FD rates going down, your updated analysis will be very useful and relevant for all fence sitters still wondering whether they can take a plunge in Equity MF.

  14. Akshat said

    Dear wise wealth advisor

    Your analysis is spot on! I have tried to replicate this analysis across multiple time periods and the conclusions are fairly consistent. Inflation is in the benchmark of 8% over last 60 years and se Sec out performance is 6-8% over that.

    So in the long run stay invested and trust that our great entrepreneurs will create immense wealth for us!

  15. Praduman Kumar jain said

    Good calculation,for future prospects requested

  16. Praduman Kumar jain said

    How many time old other index such as PSU banking index,pharm index midcap index and small cap and others.

  17. P.R.RAVINDRAN said

    Can we have a update of this analysis for all asset class for 2016-17 and 2017-18 ( up to Jan 2018 ) please

  18. ssk satyanarayana said

    stupendous work done.,kudos to you and your team.,it will help millions of people to look back on their investments.,i must really admire more on you if you do the same exercise on some selected stocks too.,

    thank u

    ssk satyanarayana

  19. ramakrishnan subramanyam anaikode said

    Kudos to you and your team. If possible, please also do the calculation for real estate vs sensex. It will be a great insight for real estate investor.

  20. Narayandan said

    If the comparison of these by decades wise available and what is the result of last decade?
    Second in sensex many companies are enlisted and many from them are not in existence.
    It’s house riding and who among them batted on poor has lost whatsoever it has in pocket too.

  21. Excellent work Mr.Muthu

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