Analsysis of Returns in various asset classes with co-relation details
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
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.
30 Sep 2015