New Delhi: Indian equities have continued to demonstrate strong long-term wealth creation potential, delivering 11-12 per cent CAGR over the last 20 years, with the Nifty 50 boosting investors’ wealth by more than 8 times, a report on Tuesday showed.
Over the long term, equities have grown nearly 80 times since 1990, yielding a 13 per cent annual return, according to FundsIndia’s ‘Wealth Conversion Report’.
It says, “Overall, timing the market is more important than timing the market, as every major market correction in history has ultimately been followed by a correction and long-term wealth creation.”
The report highlights that market volatility is a natural part of equity investing.
Historically, markets have experienced 10-20 percent intra-year declines almost every year, yet nearly 80 percent of years have ended with positive returns, indicating that volatility is often temporary.
The findings showed, “While major market corrections of 30-60 percent occur once every 7-10 years, recovery periods typically last between 1-3 years, often followed by strong bounce-backs, reinforcing the importance of staying invested.”
Mid- and small-cap equities have delivered higher long-term returns than large caps, with midcaps generating 14 per cent CAGR over 20 years.
However, they also experience more rapid and frequent drawdowns, highlighting the need for a balanced allocation.
Historical data strongly suggests that extending the investment horizon significantly improves return results. Investing in equities for more than 7 years has consistently improved the chances of earning double digit returns, with in many cases no instances of negative returns during such time frames.
The report also underlines the effectiveness of disciplined investment strategies like SIP and STP, which help investors deal with volatility, average out market timing risks and build consistent wealth over time.
“Over the long term, equities have consistently outperformed inflation, debt, gold and real estate, underscoring their importance as a core component of long-term portfolios,” the report said.
Real estate, while relatively stable, delivers moderate long-term returns of around 7-8 percent, reinforcing the importance of diversification rather than concentration in a single asset class.