When it comes to investing in India, two of the most popular options for building wealth are Nifty 50 and gold.
Both these asset classes are considered safe bets by investors, but they each have very different characteristics when it comes to wealth creation.
It is customary in India to buy gold and many Indian families possess a good amount of gold within their households. Whereas, the popularity of Nifty and equity is also growing day by day.
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If you invest Rs 100 in each of these asset classes, how would your money have grown over time? In this blog, we’ll compare the performance of Nifty 50 and gold to understand which option would have made your Rs 100 work harder.
Understanding Nifty 50
The Nifty 50 is an index of the top 50 companies listed on the National Stock Exchange (NSE) in India. These companies come from a variety of sectors like banking, IT, pharmaceuticals, and consumer goods.
Investing in Nifty 50 is like putting your money into the top-performing Indian companies. The index is seen as a reflection of the overall performance of the stock market.
Understanding Gold as an Investment
Gold has been a traditional store of value for centuries, particularly in India. It is considered as one of the safest assets, especially during periods of economic uncertainty or inflation.
Unlike stocks, which represent ownership in a company, gold is a physical commodity whose value is largely driven by global demand, currency fluctuations, and geopolitical stability.
Nifty 50 vs Gold Investment
By 2024, your Rs 100 in gold in 2007 would have grown remarkably to Rs 690.29. Meanwhile, if you invested Rs 100 in the Nifty 50 index, it would have grown only to Rs 399.62.
When it comes to investing, the results can vary depending on the timeframe. In the past year, the Nifty 50 has seen a growth of 24%, meanwhile Gold delivered a respectable 17% return.
Over the last few years, Nifty 50 gave a higher return of 12.72% while Gold delivered a return of 11.96% losing at a very small margin. The last 20 years also witnessed two crisis periods where gold performed very well as a hedge in times of crises.
Although the Nifty outperformed gold in FY24, gold has taken the lead this year, with a strong rally since mid-February. This surge has been driven by expectations of interest rate cuts by the US Federal Reserve, along with geopolitical tensions in the Middle East and Ukraine.
Central bank purchases have also contributed to gold's upward trajectory.
Since the start of 2024, gold has risen by around 6%, compared to the broader equity market (Nifty 500), which returned about 4%.
There is also a mounting distrust that's rising for the US dollar as many nations are buying gold in large quantities which is driving up the prices of gold significantly.
Where should you Invest?
Given the uncertainty around gold and even the performance of equities, it is ideal to have a balanced approach in your portfolio. If you want to invest for the long run, you can invest a certain percentage of your wealth in gold while investing the remaining in equities and debt.
During times of economic instability, investors tend to gravitate toward gold as a secure investment. It is a hedge against inflation and helps to preserve purchasing power.
Loose monetary policies and low interest rates also provide a good momentum for gold's growth.
Equities give investors the opportunity to benefit from a country's economic growth. Gold, on the other hand, is valued for its ability to store wealth and protect purchasing power.
The performance of the Nifty 50 is influenced by efforts from central banks and governments to revive the economy. Strong corporate earnings have played a key role in driving the index upward.
Combining both asset classes in a portfolio provides a balance between growth potential and risk management.
Conclusion
Over the past 20 years, both gold and the Nifty 50 have delivered solid returns to investors. However, Nifty 50 has outperformed gold by offering better returns with a very close margin.
Understanding these factors that drive both asset classes can help you to create a well-balanced portfolio and ensure overall growth.
So, make sure to have a firm grasp on all the key points before you invest your money in either asset.
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