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HomeInvestmentGold vs Equities: Which is Better in India's Context?

Gold vs Equities: Which is Better in India’s Context?

Gold has been an investment instrument that has persisted in India’s households for a long time but now with the rise of equities, one would wonder which is better?

Quite recently equities gained popularity and we saw a huge inflow of retail investors in the stock market but before equities got famous, people in India very much liked gold as an investment instrument. One has a long history with the masses of Indians and one has gained traction very recently, which is better and how do they compare when pitted against each other?

Returns

Right off the bat, one always looks for the returns an investment has produced over the years to gauge how good the instrument is and that is exactly what we’ll do; 

Time Gold  Equity (Nifty 50)
20 Years 482% 1,100%
5 Years 84.72% 95.42%
1 Year 16.53% 27.74%
6 Months 22.97% 13.95%


Looking at the comparison chart it is evident that equities are a superior invesmtent tool while it has beaten gold in every time frame. But invesmtet instruments aren’t only judged by returns there are other factors to look at as well.

Risks and Volatility

Equities are subject to market risks, including economic downturns and business cycles, which can lead to significant short-term fluctuations. Gold, on the other hand, is often considered a safe haven during times of economic uncertainty. Its price tends to rise amidst market turmoil, as seen during the global financial crisis of 2008 and the COVID-19 pandemic.

Diversification and Liquidity

For investors seeking diversification, gold can act as a hedge against inflation and currency devaluation. It is less correlated with other asset classes, which means it can reduce overall portfolio risk. Equities, while volatile, offer the potential for higher returns over the long term, especially in a growing economy like India’s where businesses can thrive, 

Both equities offer high liquidity but gold doesnt. Gold can’t be easily bought and sold except for digital gold. Equities on the other hand, traded on stock exchanges, can be bought and sold during market hours with ease. The advent of digital platforms has further simplified access to both these investment options.

Tax Considerations

In India, long-term capital gains (LTCG) on equities held for more than a year are taxed at 10% without indexation benefit. Gold, if held for more than three years, is considered a long-term capital asset, and gains are taxed at 20% with indexation benefits. These tax implications can influence the net returns from these investments.

Conclusion

The decision between investing in gold or equities in India does not have a one-size-fits-all answer. It depends on individual financial goals, risk tolerance, investment horizon, and the need for portfolio diversification. While equities have historically provided higher returns, gold offers stability and acts as a hedge against inflation and economic uncertainties. The key is to understand one’s financial objectives and to allocate assets accordingly, ensuring a blend that aligns with personal investment strategies and market conditions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

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