Return on your investment

TOI
Prabhakar Sinha

In a volatile market like this when the sensex lost over 1,000 points in two days, short-term investors, who check stock prices daily, should desist from investing. While speculators too are advised to stay away, stock markets are the best bet for those with a long-term outlook. And, the returns offered in the last five years, three years and 12 months only back the argument.




The 30-share sensitive index, has offered compounded annual returns of 43% in the last five years. For a three-year period the returns have been order of 47% and a little lower at 40% in the last one year.

Of course, return on investment is also a factor of when you enter the market. If you enter at a higher level, returns could be comparatively lower. But you can always stagger your investment over a period of time to reduce the risk of entering when the markets are already soaring. Investment advisors would tell you that staggering your investment enable investors to capture the boom and the bust of the stock market and balance out the risk.

Also, if you remain invested for a long period, the negative impact of entering at high levels would be reduced. So, if you are among those who think that the market is peaking, invest only if you can stay for long. While stock markets provide high returns, they come with high risk too. In other asset classes, if the risk is not high, the returns are also not as attractive.

For instance, bank fixed deposits for five years offer around 9% a year. And, that could be post-tax, if you invest the entire Rs 1 lakh under 80 C instruments like Employees Provident Fund and PPF in a year. If the investment is outside the tax benefit scheme, the return is even lower at 6.22%. PPF can offer you tax-free returns of 8%. But again there is a cap of maximum investment of Rs 70,000 including the deposits in EPF.

In the last couples of years, gold too has emerged as a good investment option, offering returns of 12% if you had invested a year ago and 15% if you bought the yellow metal five years ago. The returns were high due to the sharp depreciation of dollar. But, don't forget the income is taxable.

Real estate has emerged as a strong asset class offering 20% compounded returns over the last five years. Post-tax, this will be around 16%. But don't forget the large ticket size since you need to invest big.

Investing in the Indian Stock Market through Mutual Funds