Introduction
Most Indian investors focus only on finding the “best mutual fund” or the “next multibagger stock.” But research shows that asset allocation (how you divide your money across equity, debt, gold, etc.) has a far greater impact on returns and risk. In this guide, we explain the basics of asset allocation and why monthly rebalancing is essential for long-term success.
What is Asset Allocation?
Asset allocation means dividing your portfolio across different asset classes. Common categories in India:
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Equity (Stocks/Mutual Funds/ETFs): High returns, high risk.
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Debt (FDs, Bonds, Debt Funds, PPF): Stability, low risk.
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Gold (Sovereign Gold Bonds, ETFs): Hedge against inflation and currency risk.
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Real Estate (optional): Illiquid, but can diversify.
Why Asset Allocation Matters
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Reduces overall portfolio risk
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Provides stability during market crashes
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Allows long-term compounding without emotional decisions
Example: In the 2020 market crash, a 100% equity portfolio fell ~35%, while a 60% equity + 40% debt portfolio fell only ~18%.
How Much to Invest in Each Asset?
A popular rule: 100 – Age = % in Equity
Example:
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30-year-old → 70% equity, 30% debt
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45-year-old → 55% equity, 45% debt
Gold: keep 5–10% of portfolio.
What is Monthly Rebalancing?
Markets fluctuate. Over time, your portfolio can drift away from your target.
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Example: You start with 70% equity & 30% debt. After a rally, equity grows to 80%.
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Solution: Rebalance → shift some money from equity to debt to restore 70:30 ratio.
Benefits:
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Locks in profits from high-performing assets
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Controls risk automatically
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Keeps discipline
Simple Rebalancing Strategy
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Check portfolio once a month.
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If equity % has moved by more than 5% from target → rebalance.
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Use SIP/STP (Systematic Transfer Plan) instead of lump-sum shifts.
Sample Asset Allocation Table (Age-Based)
| Age | Equity | Debt | Gold |
|---|---|---|---|
| 25 | 75% | 20% | 5% |
| 35 | 65% | 30% | 5% |
| 45 | 55% | 35% | 10% |
| 55 | 40% | 50% | 10% |
FAQs
Q1: Should I rebalance monthly or yearly?
Monthly ensures better control, but at least rebalance once every 6–12 months.
Q2: What’s the best tool for rebalancing?
Most mutual fund apps (Groww, Zerodha Coin, Kuvera) allow portfolio tracking. Excel/Google Sheets also works.
Q3: Is gold necessary?
Yes, 5–10% allocation provides a safety net during inflation or stock market crashes.
Conclusion
Smart investing isn’t about finding the hottest stock—it’s about allocating and rebalancing your money across assets. By following a disciplined approach, Indian investors can reduce risk, avoid panic selling, and steadily grow wealth.