50 Equity : 50 Debt helps in meaningful wealth creation: Motilal Oswal Wealth

A study by Motilal Oswal shows 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 compound annual growth rate (CAGR) of 12.2% over 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 shows 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 equal weighted portfolio clearly emerges as a superior alternative to traditional fixed income, it said, since there is no negative return for a minimum three-year holding period and 90% of observations generated higher returns than domestic inflation based on Consumer Price Index (6% CAGR).