Why Equity over FD’s, Gold and Real Estate?
Market experts recommend equities as the best bet as it provides you with a chance to build a diversified portfolio and is a better option if compared to FD’s, gold and real estate. Investment in stock markets is not a gamble, which will provide you with an instant fortune, rather, it operates on well-defined patterns, trends, systems and principles.
Start investing in equities with a smaller amount of capital
Investing in real estate, gold or FD’s is not possible without a huge amount of capital. But, in the case of equities, you can start trading with much less. For instance, if you have a capital of Rs 1 lakh, then you can easily start trading in stock and securities.
Higher returns
Investing in equities will get you higher returns as opposed to investments in gold, real estate and FDs. While long-term returns from equities can range between 14-16%, returns from FDs average around 7%. Gold prices are often volatile and affected by a slew of factors like inflation, GDP and the political scenario. The rate of return from real estate, including commercial and residential properties, averages 11%. Thus, equities have a considerable edge over FDs, gold and real estate, in terms of returns.
Equities provide high liquidity
Investment in gold, real estate and FDs cannot be readily converted into cash. But, in the case of equities, you can quickly convert them into cash by selling your stock through your online trading account, post which the money will be credited to your bank account within a few days.
Beats inflation
The long-term returns from equities beat inflation because various companies invest in assets using borrowed money from investors and creditors which allows them to earn higher returns. According to market experts, if inflation stands at 10%, and the real economy has a growth rate of 10%, then stocks would yield 20% returns. Furthermore, investment in equities gives you the advantage of a risk premium. Equity risk premium simply means the excess returns from stock markets vis-à-vis a risk-free rate which will compensate you for taking the relatively higher risk of investing in stocks.
Tax-benefits
Investment in equities have several tax benefits:
- You can offset short term capital gains against short term capital losses and save taxes.
- With the carry forward option, you can offset your capital gains against capital losses for up to 8 consecutive years.
- You can invest in Equity-linked Saving Schemes (ELSS) to save taxes under Section 80C of the Income Tax Act.
Equity has unbeatable performance among various asset classes
- Compounding effect
- Capital Appreciation
- Dividend income
This unbeatable performance can be explained with a simple example. If you had invested Rs 10,000 in an FD in 1993, it would be worth around Rs 67,000 now. The same amount invested in a high-performing business would range between Rs 50 lakh to Rs 1 crore.
Conclusion
Thus, investments in equities have a proven track record of being better than investments in FDs, gold or real estate. When investing in the equity market, selecting a trusted financial partner is very important, who can provide features like an online Demat Account, state-of-the-art trading account along with best stock and scheme recommendations.