Top 5 Reasons to Invest in Equities

Investmments and asset allocation concept. Where to Invest? Newspaper and direction sign with investment options. 3d illustration

When looking to multiply your wealth in the long term, various investment opportunities may be available to you. You could choose to invest in different instruments, from complex instruments such as options contracts to safer options like fixed deposits. However, equities are one of the best ways to generate high returns in the long run. Here are five reasons to choose equities over other investment options.

Return potential

The number one reason to invest in equities is its high return potential. They have outperformed other investment options in the long-term. If you are looking for an investment option to grow your wealth, then this is an avenue worth considering. In the below table you can see a comparison of how various investment options performed over a period of 30 years.

A comparison!

DurationFixed IncomeCommoditiesEquities
5 Years7.44%6.11%12.16%12.11%18.17%18.33%
10 Years7.83%6.84%8.07%6.14%15.27%15.92%
15 Years8.01%7.26%9.83%7.23%13.31%13.72%
20 Years8.05%7.27%11.44%9.67%15.55%15.99%
25 Years8.29%7.43%11.11%9.55%14.99%
30 Years8.72%7.80%10.01%8.89%13.92%

Source: BSE, NSE, RBI, SP Indices. Internal Research & Analytics. % CAGR: as of Dec’21 Avg / Rates. FD: Prev Yr.

Eq-Index: Sensex – Total Return from Aug’96. Nifty-500: TRI.

Equity/Gold/Silver invt. are subject to Mkt risks.

  1. Inflation-beating returns

In the long term, equities are most likely to give you inflation-beating returns. This is a vital aspect to consider while investing because any returns lower than inflation means it erodes your purchasing power.

5 Years18.17%18.33%5.49%
10 Years15.27%15.92%5.52%
15 Years13.31%13.72%6.43%%
20 Years15.55%15.99%6.64%
25 Years14.99%6.49%
30 Years13.92%6.61%

Source: Eq-Index: Sensex – Total Return from Aug’96. Nifty-500: TRI. Inflation: CPI, as of Nov’21.

  • Capital gains and dividend income

Equities provide you with returns in two forms – one is when share prices increase, your capital appreciates. The second is through dividends, which is the share of profit that companies distribute to shareholders. There are very few investments that give you more than one source of returns.

  • Bonus and rights shares

Holding equity in a company also makes you eligible to earn bonus shares, if the company declares the same. In case the company issues a fresh round of shares, you will get first preference as an existing shareholder to buy these shares.

  • Liquidity

Equities are highly liquid investments because of the sheer volume at which they are traded on stock exchanges. In times of need, you can sell these shares to get money. You can also take a loan against your shares at reasonable interest rates.

Equities have numerous advantages for long-term investing. While they may be subject to volatility in the short-term, when you stay invested for long enough, you can make considerable gains. We do have a word of caution, if you do not have the time or the knowledge to choose the right stocks to invest in, do consult your financial advisor or invest in top mutual funds.

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