New Delhi
A recent analysis conducted by Motilal Oswal Private Wealth spanning three decades from 1990 to 2023 has evaluated the risk-reward profiles of various portfolio combinations. The study assessed the performance of different combinations of asset classes, including Indian Equity, US Equity, Long Maturity Debt, Short Maturity Debt, and Gold, all in INR terms. The portfolio combinations analyzed include an Equal Weighted Portfolio across all these asset classes, as well as portfolios with different combinations of Equity and Debt, including 25% Equity: 75% Debt, 50% Equity: 50% Debt, and 75% Equity: 25% Debt. The analysis reveals several key findings, Equal Weighted Portfolio: On a pre-tax basis, the Equal Weighted Portfolio offers the best risk-reward profile. It has generated no negative returns for a minimum 3-year holding period, with 90% of observations producing returns higher than the domestic CPI inflation, indicating an annualized return of 6%. 50% Equity: 50% Debt Portfolio: This combination is well-balanced and suitable for Moderate Risk Profile investors. The return distribution for this portfolio shows a low probability of negative returns, with around 54% of observations falling into the double-digit return category. 75% Equity: 25% Debt Portfolio: This combination is recommended for Aggressive Risk Profile investors who seek higher long-term compounding. It has the highest CAGR at 12.9%, but it also exhibits higher underlying volatility compared to other portfolio combinations. The analysis highlights that the 50% Equity and 50% Debt portfolio has the potential to generate meaningful wealth creation in the long term, with a demonstrated 12% Compounded Annual Growth Rate (CAGR) over the analyzed period. It suggests that this combination strikes a balance between returns and risk, making it a suitable choice for investors aiming for wealth creation over time. However, it’s essential to consider individual risk profiles and financial goals when building an investment portfolio.
