top of page

Asset Allocation in India: The Complete Guide to Balancing Equity, Debt, FDs, PPF and Gold

  • Writer: Manan Mehta
    Manan Mehta
  • Nov 20
  • 7 min read

If you need help with any of the following, feel free to contact us. Our team of experts will be happy to help you:


  • Investing and portfolio management

  • Spending optimization, EMIs & credit cards

  • Insurance advisory

  • Tax planning

  • Will & estate planning

  • Most other financial queries or challenges

You can also email us at help@reymanwealth.com





Asset allocation is the single most important investment decision you'll make—more impactful than which specific stocks or funds you choose. Studies show that 90% of portfolio returns come from asset allocation, not individual security selection.


This comprehensive guide explains exactly how to split your money between equity, debt, fixed deposits, PPF, and gold based on your age, goals, and risk tolerance.


Asset allocation in India: What Each Asset Does


Before allocating, understand what you're choosing between:​


Equity (Stocks/Equity Mutual Funds)


What it is: Ownership in companies; participates in business growth

Returns: 12-15% long-term average; highly volatile short-term

Risk: Can fall 20-50% during market crashes

Best for: Long-term goals (10+ years); wealth creation

Taxation: LTCG above ₹1.25 lakh taxed at 12.5% (held >1 year); STCG at 20%


Debt (Bonds/Debt Mutual Funds/Fixed Deposits)


What it is: Loans to government/companies; fixed or floating interest

Returns: 6-9% annually; stable with low volatility

Risk: Low; principal protected in govt securities/FDs

Best for: Short to medium-term goals (1-7 years); stability

Taxation: Gains taxed at income slab rate (post-April 2023 for debt funds)


Public Provident Fund (PPF)


What it is: Government-backed 15-year savings scheme

Returns: 7.1% currently (reset quarterly); tax-free

Risk: Zero; sovereign guarantee

Best for: Long-term tax-free accumulation; retirement

Taxation: EEE status (exempt-exempt-exempt)—completely tax-free


Gold


What it is: Precious metal; inflation hedge; portfolio diversifier

Returns: 8-10% long-term; 60% in 2025 alone

Risk: Moderate volatility; no income generation

Best for: Portfolio diversification (5-15%); insurance against crisis

Taxation: Capital gains (held >36 months for physical; >12 months for gold funds/ETFs)


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com


​


The Two-Basket Approach: Simple Yet Powerful


The referenced article suggests a brilliantly simple framework: divide money into two baskets based on when you need it[Source article].


Basket 1: Money Needed Within 5-7 Years

Asset Allocation: 10-30% equity, 70-90% debt Why: Short horizon can't absorb equity volatility Instruments:

  • Liquid funds for emergency fund (instant to T+1 access)

  • Short-term debt funds (1-3 year maturity)

  • Banking & PSU debt funds (conservative, low risk)

  • Fixed deposits if in 10% tax bracket

  • Conservative hybrid funds (20-30% equity max)

Example Portfolio (₹5 lakh for home down payment in 5 years):

  • ₹1 lakh: Liquid fund (emergency access)

  • ₹3 lakh: Banking & PSU debt fund

  • ₹1 lakh: Conservative hybrid fund


Basket 2: Money Needed After 7+ Years

Asset Allocation: 60-80% equity, 20-40% debt/gold Why: Long horizon allows riding through volatility; equity outperforms over time Instruments:

  • Equity mutual funds (flexi-cap, index funds)

  • Multi-asset funds (built-in equity-debt-gold rebalancing)

  • ELSS (tax-saving equity funds for 80C)

  • PPF (15-year tax-free debt component)

Example Portfolio (₹10 lakh for retirement in 25 years):

  • ₹6.5 lakh: Multi-asset fund (65% equity, 25% debt, 10% gold—auto-rebalanced)

  • ₹2.5 lakh: Nifty 50 index fund

  • ₹1 lakh: PPF (tax-free debt component)


Asset Allocation by Age: The Rule of 100

The Rule of 100 provides a quick starting point: Equity % = 100 - Your Age​

Age

Equity

Debt

Gold

Example

25-35

70-80%

15-25%

5-10%

₹70K equity, ₹20K debt, ₹10K gold per ₹1L

35-45

60-70%

20-30%

10%

₹65K equity, ₹25K debt, ₹10K gold per ₹1L

45-55

50-60%

30-40%

10-15%

₹55K equity, ₹30K debt, ₹15K gold per ₹1L

55-65

30-40%

50-60%

10-15%

₹35K equity, ₹55K debt, ₹10K gold per ₹1L

65+

10-20%

70-80%

10%

₹15K equity, ₹75K debt, ₹10K gold per ₹1L

Why it works: Younger investors have time to recover from downturns; older investors need capital preservation.​

Refinement: Modern longevity suggests Rule of 110 or 120 for aggressive wealth builders willing to take calculated risk.​

Detailed Allocation Strategies by Life Stage

In Your 20s-Early 30s: Maximum Growth Phase

Recommended Allocation: 70-80% equity, 15-20% debt, 5-10% gold​

Rationale:

  • Longest investment horizon (30-40 years)

  • Can absorb multiple market cycles

  • Small absolute amounts mean volatility hurts less psychologically

  • Compounding works best with equity returns

Specific Investments:​

  • Equity (75%):

    • ₹30,000/month SIP: ₹15K Nifty 50 index, ₹10K flexi-cap fund, ₹5K mid-cap fund

  • Debt (20%):

    • ₹1.5 lakh PPF annually (₹12,500/month equivalent)

    • Emergency fund in liquid fund (build to 6 months expenses)

  • Gold (5%):

    • ₹2,000/month in sovereign gold bonds or gold ETF

Goals Addressed: Retirement (primary), first home down payment (5-7 years), children's future education

In Your Late 30s-40s: Balancing Growth and Stability

Recommended Allocation: 60-70% equity, 25-30% debt, 5-10% gold​

Rationale:

  • Peak earning years but also peak expenses (EMIs, children's school, parents' health)

  • Still 15-25 years to retirement—time for equity

  • Need some stability for upcoming medium-term goals

Specific Investments:​

  • Equity (65%):

    • ₹40,000/month: ₹20K multi-asset fund (auto-balanced), ₹15K index fund, ₹5K sector rotation

  • Debt (30%):

    • ₹1.5L PPF annually + ₹1L EPF (employer contribution)

    • ₹10,000/month short-term debt fund for child's school fees (3-5 years away)

  • Gold (5%):

    • ₹3,000/month gold accumulation

Goals Addressed: Retirement, children's higher education (10-12 years), home loan prepayment

In Your 50s: De-Risking Phase

Recommended Allocation: 40-50% equity, 40-50% debt, 10% gold​

Rationale:

  • Retirement 5-15 years away—can't afford major crash right before

  • Health expenses increasing

  • Start shifting accumulated equity gains to safer instruments

Specific Investments:​

  • Equity (45%):

    • Shift to large-cap/index funds and conservative hybrid funds

    • Reduce mid-cap/small-cap exposure

    • ₹25,000/month into balanced advantage funds

  • Debt (45%):

    • Max out PPF (₹1.5L annually)

    • Senior citizen savings scheme (if 55+; up to ₹30L at 8%+)

    • Debt mutual funds with 3-5 year maturity

  • Gold (10%):

    • Maintain 10% buffer; liquidate if needed for goals

Critical Action: Rebalance annually—sell equity gains, buy debt to maintain 45:45:10 ratio​

60+: Capital Preservation and Income Generation

Recommended Allocation: 20-30% equity, 60-70% debt, 10% gold​

Rationale:

  • Primary goal: stable income, not growth

  • Longevity means 20-30 years of expenses ahead—some equity needed for inflation protection

  • Can't recover from losses easily

Specific Investments:​

  • Equity (25%):

    • Large-cap funds, dividend-yielding stocks, conservative hybrid funds

    • Provides inflation hedge

  • Debt (65%):

    • Senior Citizen Savings Scheme (8%+, quarterly payout)

    • Pradhan Mantri Vaya Vandana Yojana (guaranteed 7.4% for 10 years)

    • Post Office Monthly Income Scheme

    • Systematic Withdrawal Plan (SWP) from debt funds for monthly income

  • Gold (10%):

    • Hold as insurance; liquidate for medical emergencies if needed


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com


Gold's Role: 2025 Proof

Gold surged 60% in 2025 while equity markets were range-bound. Portfolios with 10-15% gold allocation significantly outperformed pure equity/debt portfolios, proving diversification value.​

Lesson: Don't chase last year's winner. Diversify across uncorrelated assets.​

Practical Implementation: Step-by-Step

Step 1: Calculate Total Monthly Investible Surplus

Income - Expenses - EMIs - Emergency Fund Top-Up = SurplusExample: ₹1,20,000 - ₹70,000 - ₹20,000 - ₹5,000 = ₹25,000 monthly

Step 2: Decide Allocation Based on Age

Age 32: Use 70:20:10 (equity:debt:gold)₹25,000 × 70% = ₹17,500 equity₹25,000 × 20% = ₹5,000 debt₹25,000 × 10% = ₹2,500 gold

Step 3: Select Specific Instruments

Equity (₹17,500):

  • ₹10,000 → Nifty 50 index fund SIP

  • ₹5,000 → Flexi-cap active fund SIP

  • ₹2,500 → Mid-cap fund SIP

Debt (₹5,000):

  • ₹12,500 PPF monthly (₹1.5L annually via lump sum if possible)

  • Otherwise: ₹5,000 short-duration debt fund SIP

Gold (₹2,500):

  • Gold ETF SIP or Sovereign Gold Bond (when available)


Step 4: Automate Everything

  • Set SIP auto-debit 7 days after salary credit

  • One-time setup, zero monthly effort

  • Removes emotional decision-making


Step 5: Rebalance Annually

When: Every April or on your birthday How: If equity grew to 80% (target 70%), sell 10% equity, buy debt/gold Why: "Buy low, sell high" happens automatically through rebalancing

​

Special Instruments in Indian Context

PPF: The Tax-Free Debt Anchor

Advantages:​

  • Completely tax-free (EEE status)

  • 7.1% guaranteed (reviewed quarterly)

  • 15-year lock-in ensures long-term discipline

  • Partial withdrawal after 7 years for emergencies

How Much: Max out ₹1.5 lakh annually if possible; counts toward 80C Who: Everyone should have PPF as debt component

ELSS: Tax-Saving Equity

Advantages:​

  • Section 80C deduction (up to ₹1.5L)

  • Shortest lock-in among 80C options (3 years)

  • Equity returns (10-12% long-term)

How Much: At least ₹1.5L annually to max 80C Who: Anyone in 20-30% tax bracket

Multi-Asset Funds: The Lazy Investor's Dream

What: Single fund investing in equity (65%+), debt (20%+), gold (10%+) Advantage: Built-in automatic rebalancing—fund manager does it for you Who: Those wanting simplicity; don't want to track multiple funds

Recommended: ICICI Multi-Asset Fund, Parag Parikh Flexi Cap (as suggested in source article)


Fixed Deposits: When They Make Sense

Use FD if:​

  • You're in 10% tax bracket (FD interest taxed favorably)

  • You want absolute certainty of returns

  • Amount needed in 1-3 years (laddered FDs)

Avoid FD if:

  • In 20-30% tax bracket (debt funds more tax-efficient)

  • Goal is 5+ years away (equity/PPF better)


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com


Common Asset Allocation Mistakes to Avoid

Mistake 1: 100% Equity in 50s

"I'm aggressive, I'll keep 100% equity till retirement. Problem: One 2008-style crash 2 years before retirement wipes out 50% corpus with no time to recover.​


Mistake 2: 100% FD/PPF in 20s

"I want safety, no risk." Problem: 6% returns barely beat 5-6% inflation. Zero real wealth creation over 30 years.​

Mistake 3: Chasing Last Year's Winner

2025: "Gold gave 60%, I'll put everything in gold!" Problem: Asset classes rotate. 2026 might see equity outperform. Diversify always.​


Mistake 4: Never Rebalancing

Start with 70:30 equity:debt. After 10 years of equity rally, it becomes 85:15.

Problem: You're taking more risk than intended. One crash hurts disproportionately.​


Mistake 5: Ignoring Gold Completely

"Gold doesn't give dividends, why hold it?"


Problem: 2025 proved gold's value—60% returns when equity was flat. 5-15% allocation is insurance, not speculation.​

​ Conclusion: Allocation Determines Success

Stock-picking skill matters less than you think. Asset allocation matters more than you imagine. A disciplined 60:30:10 portfolio with annual rebalancing will outperform random stock picks 90% of the time.

Start simple:

  • 20s-30s: 70% equity, 20% debt, 10% gold

  • 40s: 60% equity, 30% debt, 10% gold

  • 50s: 45% equity, 45% debt, 10% gold

  • 60s+: 25% equity, 65% debt, 10% gold

Or even simpler: Two funds as suggested - one conservative (short-term), one growth-oriented (long-term).

The perfect allocation is the one you'll stick with for 20+ years. Not the one with 0.5% higher theoretical returns that you'll abandon after one bad year. Start this month.


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com





Comments

bottom of page