Equity or Gold ???

Just a couple of weeks back, we wrote an article on gold and advised readers about the gold trends. In the last two weeks, we have also seen equity markets delivering some good returns and sensex again crossing the 20000 marks and now heading towards previous highs.

So the question is gold or equity? If we ask this question to any common Indian investor, 90 out of 100 will probably say Gold is better than equity. Let us first highlight a few observations before we really go about analyzing which is the better asset class for investment.

1. When sensex falls 500 points, the next day newspaper headlines quotes – “SENSEX DHADAM – Niveshako ne khoye karodo rupaye”.
2. When gold fell from 33000 to 26000 in recent times, the same newspapers quoted – “Sona hua sasta”. No one mentioned how much Indians lost. Mind you, Indians have more gold components than equities in their portfolios.
3. When stock market falls, most of the investors queue up to sell their existing holding but when gold falls 20%, there was huge queue in Johari Bazar.
4. If today, experts forecast on any business channel then sensex will fall to 18000, 10% lower from current levels, there will be another panic wave among investors and they will call their brokers or agents to sell.
5. But if the same analyst says that gold will fall to Rs. 20000 per tola, not many Indians would sell their existing gold, rather they will accumulate money to buy gold at that level.
6. In last 2 years, gold has not given any returns, rather most have lost in terms of value but not many Indians have complained about gold. But in last 5 years, equity has not given any returns and everyone complains that equity is a bad investment.
7. Gold started its biggest bull run since 2003 and from then has given a return of 16% and the entire India talks about gold but during the same last 10 years equity has given a return of 18% and no one even cares a damn about it.
8. Mutual funds where maximum equity money is from retail investors, is seeing huge withdrawals when markets have touched 20000 once again but no such panic selling was seen when gold was rising or gold was falling.

Such is the love for gold among Indians and such is the level of mistrust we have on equities. As explained in our previous article about gold, it is just a currency and does not have any economical use. Jewellery may be an industry but jewellery in itself is not a productive asset. But when it comes to equity, it is the epitome of business activity. In fact, equity itself means ownership of business. Businesses have grown multi-fold times in India in last so many years and that is visible in overall development we see all around us. To mirror that growth, equity has performed very well over the years and has created sizable wealth for investors.

We would like to keep this article not as any solution but as a question to all of you, a question to all Indians – choose where you want to invest, GOLD or EQUITY.

To assist you in taking decision, we will give you a comparative study of gold and equity with an investment of Rs. 1 lac since 1981, a 32 year period which will give you enough hints to choose your best investment.