5 Reasons Why You Should Choose Equity Over FDs, Gold and Real Estate

If you have a long-term plan for wealth creation, you must be wondering about the right investment. You have a plethora of investment options to choose from, including Fixed Deposits (FDs), gold, real estate and equities. Among all the alternatives, market experts recommend equities as the best bet. Along with high returns, equities provide you with a chance to build a diversified portfolio. Typically, you must start your investment in equities after researching and understanding the basics of stock markets.

Here, you must remember that investment in stock markets is not a gamble, which will provide you with an instant fortune. Rather, the market operates on well-defined patterns, trends, systems and principles. As the first step, you should open a Demat Account and a Trading Account with a genuine financial partner.

Read on to find the five reasons why you should prefer investing in equities vis-à-vis FDs, gold and real estate.

1. You can start investing in equities with a smaller amount of capital:

You cannot think of investing in real estate without having a huge amount of capital. Similarly, for getting high returns from gold or FDs, you have to invest a large amount. But, in the case of investment in equities, you can start trading with a much lesser amount of capital. For instance, if you have a capital of Rs 1 lakh, then you can easily start trading in stock and securities. You also have the option of creating a diversified basket of stocks by purchasing small-cap, mid-cap and large-cap stocks. None of the other three investment options provide you with the option of diversification by investing a low amount of capital. In a nutshell, you can enter the stock markets with a small capital, and watch your wealth appreciate.

2. You receive higher returns:

You will receive higher returns by investing in equities 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 are affected by a slew of factors like inflation, GDP and the political scenario. Violent swing in gold prices will affect your returns. The rate of return from real estate, including commercial and residential properties, average 11%. Thus, equities have a considerable edge over FDs, gold and real estate, in terms of returns.

3. Equities provide high liquidity:

Investment in gold, real estate and FDs cannot be readily converted into cash. If you require instant money, for any emergency, you cannot depend on these investment options. But, in the case of equities, you can quickly convert them into cash. All you require is to sell your stock through your online trading account, and the money will be credited in your bank account within a few days.

4. Investment in equities beats inflation:

  • The long-term returns from equities will beat inflation. This is because various companies invest in assets using borrowed money from investors and creditors. This allows them the businesses to earn higher returns. By owning the shares of a company, you also become part-owners and share in the profits. 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.
  • Another advantage of investment in equities is the risk premium. Equity risk premium simply means the excess returns from stock markets vis-à-vis a risk-free rate. This excess return will compensate you for taking the relatively higher risk of investing in stocks.

5. Equity provides you with tax-benefits:

Alongside, investment in equities has several tax-benefits:

  • You can off-set 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.

Equities have unbeatable performance among various asset classes: Equities are the best performing asset classes because of three key factors:

  • 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, you must, however, remember to select a trusted financial partner, who can provide features like an online Demat Account, state-of-the-art trading account along with best stock and scheme recommendations.

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