Opinion | Which asset will you vote for in your portfolio?

No conversation these days is complete without a discussion on the upcoming general elections. A strong leader at the centre can do wonders for the prosperity of a nation, but our individual prosperity, to a large extent, is determined by the strength of our investments. While we carefully assess political candidates to make the right choice in national interest, it is equally crucial that we vote for strong instruments to our portfolio in self-interest. We go through political manifestos and cross-check a candidate’s performance based on available data to choose the right candidate. To help you assess popular investment options in a similar fashion, we have done some homework for you.

Fixed deposit

Campaign slogan: Safety is our top priority

Promise: Assured returns at no risk has made FDs the most sought after option in India. Getting a lump sum at the time of maturity helps to provide for planned expenses. Easy withdrawal process, choice of tenure and tax-saving options are additional benefits. You can even take a loan against your FD and the rate of interest is much less than that on traditional loans.

Actual facts: FDs, a good option to park money, are not viable for wealth creation. Interest earned on FDs is taxable and is not sufficient to beat inflation. Any fluctuation in interest rate could mean that your long-term funds are tied up at lower rates. The lump sum nature of investment fails to bring the discipline of systematic investments and associated benefit of compounding.

Gold

Campaign slogan: For a sparkling future

Promise: The emotional and traditional connect of Indians with gold is well known. Gold is the best gift option for all special occasions. Since the supply is limited and demand more, gold value only appreciates. It is simple to acquire. Either by selling it or acquiring a loan against it, you can tide over unforeseen situations. Fairly high liquidity and low risk add further sheen.

Actual facts: Value appreciation from gold tends to fall short of expectations. The rate at the time of sale depends on the international bullion market, which may not be favourable. Storage of gold involves cost. Its purchase as well as sale entails taxes (GST and capital gains). Purchase of gold jewellery includes additional making charges. At the time of sale, however, you lose on those charges and pay extra deduction charges. Hence, the effective rate of return is much lower.

Real estate

Campaign slogan: Building for the future

Promise: Buying a place to call home is a dream of millions of Indians. Stability and a sense of security imparted by a real estate investment is quite high. The value of property in India has only seen appreciation. Attractive finance schemes have made it easier to acquire this asset. You can transfer this asset to your loved ones as inheritance as well.

Facts: Value appreciation is not as hunky-dory as it seems. Effective return on a property which was worth, say, ₹5 crore in 2018 and was bought for ₹20 lakh in 1988 is 11.33%. Assuming you took a loan at 10% to buy that house, you effectively earn 1.33% on your investments. Then, upkeep and maintenance drain resources. The asset is difficult to dispose in times of need. The Indian real estate market is currently undergoing a slowdown which might be here to stay for a while.

Equities

Campaign slogan: Vote for me to set you free

Promise: The best way to create wealth is to be a part of the India growth story through equity. Equity investments offers inflation-beating returns over the long term. This highly liquid asset can be easily monetised when needed. Investments through SIP route bring about the much-needed discipline and make compounding work for you. Data shows that the longer you stay invested, higher is the possibility of positive returns.

Actual facts: The investments are subject to market risks and the volatile nature of equity markets is well known. The fortune you make in equities depends on the quality of stocks you pick. For those who lack expertise, crossing this hurdle becomes a challenge, exposing their investments to risks. The domestic index, Sensex, however, has multiplied by more than 360 times since its inception in 1979, giving a CAGR of about 16% over this period, which is much higher than any other asset class.

Voting the right assets to your portfolio is as crucial as voting the right party to power. While in general elections you select only one candidate, “asset election” allows you to pick up your whole cabinet, allocating power to each candidate as per your needs. Unlike in the case of a central government, a coalition works better in this case.

Arun Thukral is managing director and chief executive officer, Axis Securities