InvestorQ : How does equity as an asset class compare with gold and real estate?
Juvina Maggie made post

How does equity as an asset class compare with gold and real estate?

Priyanka N answered.
3 years ago

Since the beginning of the year 2015, equity mutual funds have been seeing phenomenal inflows from retail investors. That is one of the reasons why domestic mutual funds in India have been consistent buyers even when the FIIs have been sellers. Indian households over the years have preferred gold, property and bank FDs as their primary investment avenues. However, a lot has changed in the last few years. Firstly, bank FDs are paying very low rates of interest of below 7.5% and that is headed further down. After tax, that does not even cover inflation risk.

Secondly, real estate has not been giving the kind of returns post-2008 when there has been a glut of residential and commercial properties in India. Recently, the demonetization exercise made cash transactions extremely difficult for home buyers and that suppressed the demand for property. Thirdly, gold has always been a safety net for the Indian families. With a holding of 950 tonnes of gold, Indian households do not have much further appetite for gold, especially in the light of the fact that gold prices have been so erratic.

All these factors leave only equity as a genuine and reliable means of creating wealth for Indian households. Indian markets have substantially matured in terms of systems, processes and regulations such that people are able to rely on the integrity of markets a lot more than they previously could. Tax benefits are another factor in favour of equities. Dividends are entirely tax free in the hands of the investor up to Rs.1 million per year. That leaves most small and medium-sized equity investors outside the ambit of taxation. Additionally, equity capital gains after holding for 1 year are classified as long-term and are entirely tax-free. Even short term capital gains are taxed at a concessional rate of 15%. All these factors make a strong case in favour of equities.