In the realm of investments, understanding long-term performance is crucial. Let's analyze how ₹100 invested in 1985 would have fared across three distinct asset classes: gold, the Sensex, and fixed deposits.
Gold: A Hedge Against Uncertainty
Gold has historically been considered a safe-haven asset, particularly during economic downturns. A WhiteOak Capital report highlights gold's role as a hedge against volatility and inflation over nearly four decades. If you had invested ₹100 in gold in 1985, it would have grown to ₹6,518 by March 2025. This showcases gold's effectiveness as a growth and risk-mitigating investment. The metal delivered an 11.0% compound annual growth rate (CAGR) in the decade beginning 1985, which accelerated to 14.3% in the decade starting 2005, and maintained a strong 12.9% CAGR through the 2015 decade. Gold's average 10-year rolling CAGR of 10.2% since 1985 has consistently outpaced bank deposits (8.1%) and inflation (7.2%).
Sensex: Riding the Equity Wave
The BSE Sensex, a benchmark index of the Indian stock market, has offered significant returns but with higher volatility. An investment of ₹100 in the Sensex in 1985 would have grown to ₹13,484 by March 2025. While equities outperformed gold over the entire period, this came with far higher volatility. There were periods when equities underperformed gold. For instance, ₹100 invested in the Sensex in 1995 would have become ₹2,374, in 2005 it would be ₹1,192, and in 2015, ₹277. Despite the fluctuations, staying invested in the Sensex through various economic cycles has generally paid off.
Fixed Deposits: Stability at a Cost
Fixed deposits (FDs) are traditionally viewed as low-risk investments, offering guaranteed returns. However, this stability comes at the cost of lower growth compared to gold and equities. An initial investment of ₹100 in bank deposits in 1985 would have grown to only ₹2,100 by March 2025. Bank deposits grew steadily but modestly: ₹100 grew to ₹859 (1995), ₹400 (2005) and ₹183 (2015). The real wealth creation was limited without asset allocation. While FD interest rates have fluctuated over the years, they have generally trended downward since the high rates of the mid-1990s.
The Impact of Inflation
Inflation plays a crucial role in evaluating investment performance. An inflation-adjusted value of ₹100 in 1985 would be ₹1,478 by March 2025. Gold's performance has narrowed the gap with equities over time despite lower drawdowns.
Conclusion
Over the past four decades, different asset classes have offered varying returns and risk profiles. The Sensex has provided the highest potential growth but also the greatest volatility. Gold has served as a reliable hedge against uncertainty and inflation, delivering consistent returns. Fixed deposits have offered stability but with limited growth potential. The optimal investment strategy depends on individual risk tolerance, investment goals, and economic outlook. Diversification across asset classes remains a prudent approach to balance risk and return.
