Adults / Investing fundamentals
Chapter 3 of 4
Asset allocation
How to split money between equity, debt and gold, why it matters more than picking funds, and when to rebalance.
My Money & MeUpdated Oct 22, 202610 min
On this page · Chapters in this module
- 1Risk and return · Coming soon
- 2The asset classes · Coming soon
- 3Asset allocation
- 4Diversification · Coming soon
Asset allocation is how you split long-term money between equity, debt, gold and cash. It decides most of the return you get and most of the swings you have to sit through, far more than which fund you pick. Get the split right and a plain index fund and a PPF account can do the rest.
What each asset does
| Asset | Job in the portfolio | Typical long-run return |
|---|---|---|
| Equity (shares, equity funds) | Growth that beats inflation over 7 years or more; falls 30% or more in bad years | About 11% to 12% a year |
| Debt (PPF, EPF, FDs, debt funds, bonds) | Stability and predictable income | About 6.5% to 7.5% a year |
| Gold (gold ETFs, sovereign gold bonds) | A hedge when markets and the rupee are under stress | About 8% a year, with long flat spells |
| Cash (savings, liquid funds) | The emergency fund; not a long-term investment | About 3% to 5% a year |
A starting split
A common rule of thumb is to hold 100 minus your age as a percentage in equity, kept between 30% and 80%. At 30 that is 70% equity; at 55 it is 45%. The check-up uses this rule to compare with your own mix. Adjust it for how you feel when markets fall: if a 30% drop would make you sell, hold less equity.
Money also has a time horizon. Money needed within three years should be in debt or cash, whatever your age. Money for five years or more can carry the equity share. Your house is where you live, so leave it out of the split.
Rebalancing
Markets move the split for you. After a strong year for shares, 60% equity can become 70%. Once a year, or when the mix drifts more than 10 percentage points from your target, bring it back.
- First, point new SIPs and bonuses at the under-weight asset; this costs nothing in tax.
- If that is not enough, move money between funds, watching exit loads and capital-gains tax.
- Do not rebalance every month. Once a year is enough.
SIP calculator
Defaults come from the India rule pack india-2026-27.v1. Change any of them.
₹5,000
Assumptions
Maturity value
₹11.62 L
- Total invested
- ₹6 L
- Estimated gains
- ₹5.62 L
Educational estimate. Returns are not guaranteed; taxes and charges are not included unless stated. · india-2026-27.v1
Key takeaways
- The split between equity, debt and gold matters more than which fund you choose.
- Start near 100 minus your age in equity, between 30% and 80%, and keep short-term money out of equity.
- Rebalance yearly, using new money first.
Check your understanding
1. Using the 100 minus age rule, about how much equity suits a 40-year-old?
2. Money for a car you will buy in 18 months belongs in:
3. What is the cheapest way to rebalance?