Nifty vs Gold Returns over 15 years (2006-2020) – Where to invest?

Nifty and Gold are 2 investment options that are favorites among Indian investors but both the investments belong to different types of asset classes. Nifty belongs to equity asset class while Gold belongs to commodities. Inherently, both asset classes have different characteristics when it comes to evaluating the risk weighted returns.

Equities are known to perform better when the economy is doing good and businesses are booming with profits while commodities like Gold are known to preserve investment value and protect capital when the economy is weak.

Interestingly, over a period of 15 years both the types of investments have given an almost identical average annualized returns of ~12% which in itself is a very good rate of return. To get that into perspective, a return of 12% compounded over 15 years, increases your invested capital by 5.5x or to keep it simple, ₹1 Lakh invested becomes ₹5.5 Lakh.

Even though the returns are identical, the most important thing to consider is the volatility in the returns of these investments. Volatility is nothing but the degree of variations in the rate of returns. While Gold seems to be relatively stable, Nifty seems to give wild fluctuations with massive returns and drawdowns on consecutive years. Nifty has a standard deviation of 32 while Gold has a standard deviation of 12 which essentially means that Nifty is thrice as volatile as Gold.

Where to invest – Nifty or Gold?

Like always, there is no standard one-size-fits-all answer to this question and it depends on the risk tolerance of an investor. Investing in Nifty requires an investor to have a steady mindset when the economy is weak and there are periods of drawdowns while investing in Gold requires an investor to stay disciplined when economy is booming and markets are outperforming and delivering huge returns while their investments in Gold are generating mediocre returns.

Nifty vs Gold – Returns over 15 years

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Annual Returns in % (data till 30-Mar-2020)