What provides much better returns more than the extended term — Sensex, or Gold? On the face of it, each appear to accrue equal gains more than the years, notwithstanding the quick-term fluctuations. Consider this: each gold cost and Sensex have been at practically equal levels 21 years ago, and are trading at equal levels now. Back in the year 1999, gold costs averaged at Rs 4,234 per 10 grams, when the S&P BSE Sensex was at 4,141 points. And now, in the year 2021, gold costs have multiplied 12 occasions to Rs 49,659 per 10 gram (MCX February futures) on the other hand, effectively, the Sensex has also grown the identical — 12 occasions to 49,625 points (at close on January 21).
Total returns far outweigh Sensex, Gold
However, the actual Sensex returns have surpassed that of gold by as substantially as about 50% more than this period. The purpose: the accurate measure of Sensex returns is not its Price Returns Index (PRI), but Total Returns Index (TRI). The PRI considers only capital appreciation the TRI incorporates cost appreciation in addition to the dividend, interest, and capital gains.
While the Sensex and gold have moved from about Rs 4,one hundred-4,200 to about Rs 50,000 in the final 21 years, the Sensex TRI has jumped from 4,356 points on 30 June 1999 to 72,222 points on January 21, 2021, multiplying practically 17 occasions. Sensex TRI has grown at a CAGR of 14.31 per cent considering the fact that 1999, and now has a lead of more than 22,500 points, or 45% more than each Sensex and gold costs.
Gold cost: Rs 49,659 per 10 gram on 21 Jan 2021 vs Rs 4,234 in 1999
BSE Sensex: 49,625 points on 21 Jan 2021 vs 4,141 points on 30 Jun 1999
Sensex TRI: 72,222 points on 21 Jan 2021 vs 4,356 points on 30 Jun 1999
Why we need to look at TRI to calculate actual returns
TRI reflects the returns on the index arising from a constituent stock cost movements and dividend receipts from constituent index stocks. An investor in index stocks should really calculate the total returns index rather of the cost index to identify the actual returns vis-à-vis the index, Narendra Solanki, Head of Research at Anand Rathi Shares and Stock Brokers, told TheSpuzz Online. Also, when comparing returns across various asset classes such as equity with gold and so on, total return index as a benchmark for equity should really be preferred.
Further, total return index is a more effective strategy in figuring out equity returns as index worth return is measured on the basis of capital appreciation as effectively as dividends, Ajit Mishra, VP Research, Religare Broking, told TheSpuzz Online. While the cost index only considers capital appreciation. “Hence, in our view, the total return index is much more transparent and credible as compared to the price index,” he added.