The below chart shows the average annualised returns for each asset class, namely, GOI 10 year, Silver, Gold, Sensex, Fixed Deposit, PPF, EPF
The returns analysis is taken over a period of 35 years.
The returns on various asset classes(pre -tax) are an indication of performance of various asset classes over the time horizon.
From the attached graph one can derive returns from Equity (Sensex), as an asset class, exceeds the others by a margin of approximately 14%

While one’s risk profile, goals, time horizon and other factors are to be considered for asset allocation, it is important to note how consistent returns
can be derived from an asset class if held for the long term.

Average Inflation in the country has been 7-8% over the last 15 years and if one were to understand real returns from the above asset classes, some asset classes real returns would be
in the range of 2-4% post inflation.
It is prudent to select an asset class that beats inflation by a reasonable amount.

While no one particular asset class will beat the others in a shorter time horizon(refer 1990-2003 returns in sensex) the objective of asset allocation is to balance any vagaries that might occur in one asset class.

We have also calculated the co-efficient corelation of the various asset classes. By investing in a diversified group of assets, that are negatively co-related the returns from these asset classes will be positive across market cycles.

Year GOI 10 Year Silver Gold Sensex FDs PPF EPF
1980-81 0.70% 31.39% 3.50% 10.00% 8.25% 8.25%
1981-82 6.16% 12.92% 35.25% 10.00% 8.50% 8.50%
1982-83 25.28% 0.20% 27.12% 11.00% 8.75% 8.75%
1983-84 2.50% 7.89% -3.76% 11.00% 9.15% 9.15%
1984-85 9.12% 9.04% 6.75% 16.06% 11.00% 9.90% 9.90%
1985-86 10.25% 8.39% 7.13% 42.39% 11.00% 10.15% 10.15%
1986-87 10.75% 30.41% 9.32% 59.57% 11.00% 11.00% 11.00%
1987-88 11% 14.95% 32.66% -8.95% 10.00% 11.50% 11.50%
1988-89 10.75% 7.46% 3.01% -22.21% 10.00% 11.80% 11.80%
1989-90 11% -1.19% 1.70% 82.26% 10.00% 12.00% 12.00%
1990-91 11% 8.46% 6.88% 8.16% 11.00% 12.00% 12.00%
1991-92 11.50% -3.46% 24.51% 52.45% 13.00% 12.00% 12.00%
1992-93 12.37% -10.32% -4.51% 267.61% 11.00% 12.00% 12.00%
1993-94 12.70% 5.42% 10.43% -47.32% 10.00% 12.00% 12.00%
1994-95 12.85% 7.89% 2.99% 63.57% 11.00% 12.00% 12.00%
1995-96 13.71% -0.77% 6.22% -12.28% 13.00% 12.00% 12.00%
1996-97 13.62% 2.61% 2.28% 2.81% 12.75% 12.00% 12.00%
1997-98 11.95% 6.84% -14.27% 0.51% 11.75% 12.00% 12.00%
1998-99 11.85% 2.69% -1.82% 15.83% 11.00% 12.00% 12.00%
1999-00 11.59% -2.46% 2.94% -7.14% 10% 12.00% 12.00%
2000-01 11.08% -5.35% 1.82% 37.07% 8.25% 12.00% 11.50%
2001-02 9.00% 7.30% 2.36% -29.42% 8.12% 9.50% 9.50%
2002-03 7.59% 9.15% 16.45% -1.85% 6.37% 9.50% 9.50%
2003-04 5.98% 22.46% 7.25% -11.98% 5.37% 9.50% 9.50%
2004-05 6.36% 10.75% 7.46% 86.33% 5.25% 9.50% 9.50%
2005-06 7.24% 61.10% 12.29% 15.05% 5.87% 8.50% 8.50%
2006-07 7.91% 1.95% 33.91% 75.08% 7.50% 8.50% 8.50%
2007-08 7.59% 9.37% 8.17% 7.70% 8.25% 8.50% 8.50%
2008-09 8.25% 19.17% 28.95% 25.46% 8.17% 8.50% 8.50%
2009-10 7.25% 47.27% 22.24% -36.63% 7.05% 8.50% 8.50%
2010-11 7.32% 53.70% 22.03% 78.68% 7.12% 9.50% 9.50%
2011-12 8.90% 0.50% 33.78% 9.77% 8.72% 8.60% 8.25%
2012-13 8.34% -19.04% 17.27% -10.00% 9.00% 8.80% 8.50%
2013-14 8.28% -13.03% -3.23% 7.93% 8.87% 8.70% 8.75%
2014-15 8.50% -8.26% -6.08% 18.99% 8.70% 8.75%
2015-16 -4.36% 25.90% 8.70%
Average % 9.86 9.08 9.69 24.26 9.52 10.18 10.19

Returns from various asset classes

returns

 

Coefficient Correlation

Correlation GOI 10 Year Bonds Silver Gold Sensex FDs PPF EPF
GOI 10 Year Bonds 1.000 -0.407 -0.355 0.097 0.885 0.883 0.879
Silver -0.407 1.000 0.236 -0.098 -0.431 -0.264 -0.245
Gold -0.355 0.236 1.000 -0.114 -0.294 -0.364 -0.422
Sensex 0.097 -0.098 -0.114 1.000 0.059 0.150 0.155
FDs 0.885 -0.431 -0.294 0.059 1.000 0.591 0.599
PPF 0.883 -0.264 -0.364 0.150 0.591 1.000 0.997
EPF 0.879 -0.245 -0.422 0.155 0.599 0.997 1.000

 

GOI 9.85%
Silver 9.08%
Gold 9.69%
Sensex 24.26%
FDs 9.52%
PPF 10.18%
EPF 10.19%

 

Sources
Gold and silver prices dbie.rbi.org.in/DBIE/dbie.rbi?site=statistics
Paper – Yearly average price in domestic and foreign markets
Sensex www.bseindia.com/indices/IndexArchiveData.aspx
PPF www.ppfaccount.in/ppf-interest-rate.html
EPF www.epfindia.com/site_docs/PDFs/MiscPDFs/InterestRate_OnPFAccumulationsSince1952.pdf
Bank FDs www.sbi.co.in/portal/documents/36873/53953/1403695699641_RETAIL_TERM_DEPOSIT_INTEREST_RATES.pdf/3f68fe5f-8b81-4205-90bf-67a825a42556
Nifty www.nse-india.com

Credits: Akhila Muralidhar, Rashmi Hingne, Dilshad Billimoria.