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Wednesday, September 3, 2025

Asset Allocation Decision : India

 As an investor, you have options to select different asset classes like Fixed Deposits, Gold, Debt and Equity including their variants through many channels. Latest data from India shows that during longer time periods, Equity represented by Sensex or Nifty has outperformed other asset classes. 

The 10 Year Return spectrum


Over the past decade ( 2015 - 2025), the Nifty Total Return Index(Nifty TRI )  has outperformed other investment options, delivering the highest return, closely followed by gold. SBI's 10-year fixed deposits scheme lagged behind at No. 3 position. While historical data provides important insights, future performance of the same asset class may vary, emphasising the importance of diversified investment strategies.

The physical gold, the Nifty 50 TRI index and fixed deposit (FD) as three investment types, all 3 are unrelated with different features. Physical gold is considered the best hedge against inflation, but its price rise is unpredictable. The Nifty 50 TRI is pure equity, representing India's top 50 companies with the highest market value. But its performance is also highly volatile. FD, on the other hand, provides fixed return, but its interest rate is often relatively lower than the returns from other asset classes. However, due to lower risk, many people prefer to have FDs in their portfolio to cover the debt allocation part.

Let us now compare the performance of all three asset classes in the last 10 years as which of them has given the highest return on a Rs 1 lakh investment.


Looking at the last 10-year data, the Nifty TRI index has given the highest return of 13.62%, which is closely followed by gold with a return of 13.46%. Fixed deposit is far behind with a return of 8.25%. However, you need to remember that these are past returns and there is no assurance that these will be repeated similarly in future.


The latest 30 year Return Spectrum


Investors are often on the lookout for the best-performing asset class — with their choices spread across fixed income instruments, like Public Provident Fund (PPF) and bank fixed deposits (FDs), precious metals such as gold and the equity market. 

This study covers period from 1995-2025 and considers Nifty 500, Sensex , Gold, PPF and FD. 



Nifty 500 is a more broad index compared to Nifty index. In the last 30 years, Nifty 500 has given 15.20%, Sensex 14.10%. Gold 12.5%, PPF 8.1% and Fixed Deposit 7.2% 


India in the global market place


Nifty completed 29 years by 2025 having started in 1996.  A comparison of Rate of return on Gold,  Nifty in dollar terms  , S&P 500 is very impressive about India's position global investment field.  In the last 29 years(1996-2025), gold has given around 7.7% returns on a CAGR basis and S&P 500 in dollar terms has given returns in the range of 7.6%. In the same time, Nifty has given a return of 8.5% on a CAGR basis in dollar terms


Prior period studies -India


 The performance of gold and the Sensex stock market index in India from 1979-1980 to 2011-2012 also confirm, that in longer investment periods, equity performs better than gold.


 This gives reason for investing in mutual funds which has equity portfolios by investors. on a generalised basis, it can be said that :


Asset Allocation Decision


An aggressive investor in his 20s/30s can afford to allocate a higher portion of his portfolio towards equities as he has a longer investment horizon and can take on risk and volatility that comes along with it and has less income needs from the portfolio.

 

For a young investor, he advises 70% allocation towards equities (40% in Nifty 50, 15% in Nifty 500 and 15% in Mid-cap and Small-cap fund), 15% towards debt for emergency liquidity needs and the remaining 15% can be allocated towards gold ETFs, physical gold for a hedge against inflation.

 

Contrary to an investor in his 60s will have higher current income needs and will find it difficult to bear the risk of volatility of equities. Hence, allocation of 15-20% towards equities will be apt for him, along with 65-70% in fixed income to cater towards his regular income needs and remaining towards gold for hedging against inflation.


Consult your investment advisor  before investing as personal landscape of needs vary quite differently from one person to other. 



Happy Investing, 



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