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    PPF investment can beat Sensex returns over 20-year period

    Synopsis

    Rs 10,000 invested in PPF in August 1994 would have yielded Rs 73,000 now versus Rs 57, 000 in the Sensex.

    ET Bureau
    MUMBAI: Equity investors are laughing their way to the bank because Sensex has generated 44% returns during the past one year. While the benchmark index has generated this return, there are several stocks that have risen by more than 100% during the same period.

    So, it’s natural for investors to get carried away when Dalal Street is on a roll, and the Sensex is making a habit of hitting record highs almost every other day. Suddenly, retail investors are flocking back to the market if inflows into equity schemes and the number of demat accounts opened recently are any indication.

    But here lies the catch: retail investors who are entering the ring now need to be mindful of the fact that they may not get the kind of returns from equities as seen in the recent past. In some instances, it also doesn’t make much sense being a long-term investor in equities.

    A look at the Sensex returns chart in the past 20 years could be a bit disappointing even for a hard-core investor.

    The Sensex closed at 4,588 in August 1994 and despite being at a lifetime high of 26,420 now, it has only generated a mediocre annualised return of 9.15% during this 20-year holding period.

    Several debt products, like the Public Provident Fund (PPF), have generated better annualised returns of 10.46% in this period.

    Though the difference looks small in percentage terms, it is actually big in final value. While the Rs 10,000 investment in Sensex at the end of August 1994 grew toRs 57,520, the same amount invested in PPF at that time has grown to Rs 73,124.

    While this study is no suggestion that a PPF is a far better option than equities at all times, it just reinforces the fact that timing is critical in the capital market. Despite the recent rally, Sensex’s annualised return for a period of seven years is only 8.10%, if you have entered at the fag end of the previous rally (i.e., in August 2007).

    Image article boday




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

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