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Real estate v/s equity – The long term story

Author: Balaji Rao/Wednesday, January 2, 2019/Categories: Exclusive

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Real estate v/s equity – The long term story

It’s appalling that Indian investors have by and large ignored the long term wealth creation possibilities of staying invested in equities, both stocks and mutual funds, by displaying utmost (and blind) faith towards real estate as a long term asset.

For most families it has been centuries old tradition to invest in real estate as an investment (other than self-dwelling property) and stay invested for decades; it maybe redoubtable that real estate can offer good return on investment, but should equities be ignored at the cost of ignorance?

Let’s see the performance of equity mutual funds over a period ranging from 20 years onwards; assuming Rs.10 lakh was invested and the wealth it would have created in these years.

MUTUAL FUND NAME

LAUNCH DATE

No. OF YEARS

INVESTED AMOUNT

VALUATION (NOV 2018)

Franklin India Prima Fund

Dec-93

24.95

Rs.10 lakh

Rs.8.94 crore

Franklin India Bluechip Fund

Dec-93

24.95

Rs.10 lakh

Rs.4.37 crore

Franklin India Equity Fund

Sep-94

24.19

Rs.10 lakh

Rs.5.56 crore

HDFC Equity Fund

Jan-95

23.86

Rs.10 lakh

Rs.6.17 crore

Aditya Birla SL Equity Hybrid '95 Fund

Feb-95

23.78

Rs.10 lakh

Rs.7.18 crore

Reliance Growth Fund

Oct-95

23.11

Rs.10 lakh

Rs.10.28 crore

Reliance Vision Fund

Oct-95

23.11

Rs.10 lakh

Rs.5.08 crore

HDFC Tax Saver Fund

Mar-96

22.70

Rs.10 lakh

Rs.4.96 crore

HDFC Top 100 Fund

Sep-96

22.19

Rs.10 lakh

Rs.4.55 crore

ICICI Pru Large & Mid Cap Fund

Jul-98

20.36

Rs.10 lakh

Rs.3.11 crore

Aditya Birla SL Equity Fund

Aug-98

20.28

Rs.10 lakh

Rs.6.80 crore

Note: Schemes have been mentioned in order of launch; NAV to NAV lump sum performance considered on CAGR basis since the launch of the respective mutual fund schemes; valuation as on 02.11.2018

These dozen equity mutual fund schemes are a mirror to the possibilities of equity as an asset class over long term. 

Significant differences between real estate and equities are – (a) liquidity (real estate is illiquid while equities are highly liquid asset); (b) entry level investment amount (real estate requires huge initial investment while equities requires very small entry level investing); (c) ease of disposing (real estate cannot be disposed-off in small portions while equities can be sold in small quantities); (d) taxation (real estate is high on taxes and takes time for actual realization of gains after all the formalities as prescribed by the Income Tax department while the same is simple and easy to understand with equities); (e) legal aspects (real estate requires a lot of legal hassles while equity has none of those hassles).

One should believe in real estate, but it is also wrong not to understand the power of equity as well. While we have been taught (?) to stay for very long durations with traditional asset classes such as gold, post office instruments and real estate, equities has been relegated for short term and/or no actual duration of staying invested.

With direct stocks too the returns over longer duration has been phenomenon with stocks such as Infosys, TCS, Wipro, MRF, Page Industries, Havells, Pidilite, Asian Paints, HUL, ITC, Maruti, Cipla and the likes that have created infinite wealth. While picking such stocks is quite challenging for common investors the ideal option is to choose equity mutual funds instead. The real game changer would be to stay invested with similar durations just like traditional asset classes.

The young creed of investors should definitely consider equities for really long term of staying invested and reap the power of compounding benefits.

(The author has written six books on investing and personal finance. He has 23 years of industry experience and six years in academics.) 

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