50% equity:50% debt helps in meaningful wealth creation: Motilal Oswal Private Wealth

Mumbai: A study by Motilal Oswal Private Wealth showed that a portfolio comprising 50% equity and 50% debt has the potential to generate meaningful wealth creation in the long term. Such a portfolio returned a 12.2% compound annual growth rate (CAGR) in the 1990-2023 period, with a standard deviation of 14.3%, according to the study.

The brokerage house said a portfolio equally divided between equity and debt is optimum for investors with a moderate risk profile. The return distribution showed a low probability of negative returns, with around 54% of observations in the double-digit category, it said.

Based on a returns distribution analysis using three-year rolling returns (monthly data), the equally weighted portfolio clearly emerged as a superior alternative to traditional fixed income, it said, since there were no negative returns for a minimum three-year holding period and 90% of observations generated higher returns than domestic inflation based on Consumer Price Index (6% CAGR).

An equal-weighted portfolio entails the same allocation to each stock or asset as a proportion of the total investment, ensuring that they all enjoy the same position in the portfolio. In a 50:50 portfolio, an investor holds 50% of the investments each in equity and debt.

Source: Motilal Oswal Private Wealth study