A new study by WhiteOak Capital Mutual Fund challenges the common belief that increasing equity allocation automatically makes a portfolio riskier. According to the analysis of rolling one-year returns from September 2001 to June 2026, a 100% debt portfolio delivered an average annual return of 6.79% with volatility of 6.38%. However, adding a 10% equity allocation improved returns to 7.99% while reducing volatility to 5.76%. The study shows that adding measured equity allocation to a debt portfolio can improve returns without necessarily increasing volatility, depending on the specific asset mix and how different asset classes behave together.
The analysis reveals that a portfolio with 80% debt and 20% equity generated an average annual return of 9.20% while maintaining the same volatility as the pure debt portfolio. Similarly, a 75% debt and 25% equity portfolio delivered an average return of 9.80% with only a marginal increase in volatility. At the higher end, a 50% debt and 50% equity portfolio generated 12.81% returns but with significantly higher volatility of 12.39%. The study demonstrates that the actual impact on volatility depends on the specific asset allocation and how different asset classes interact within the portfolio.
The study also analyzed the impact of adding gold as a third asset class to debt-equity portfolios. A portfolio with 55% debt, 25% equity and 20% gold delivered an average annual return of 11.60% while volatility remained broadly similar to a 100% debt portfolio. Compared with the pure debt portfolio, this combination generated about 3 percentage points higher returns with only a marginal increase in volatility. The study notes that adding a judicious combination of low, negligible and negatively correlated asset classes can help improve the risk-adjusted return profile of a portfolio.
Among all combinations analyzed, the 10% debt, 70% equity, and 20% gold portfolio generated the highest average annual return of 17.02%. On the other hand, the 70% debt, 10% equity, and 20% gold portfolio recorded the lowest volatility at 5.52%. The study emphasizes that adding gold to a debt-equity portfolio can be particularly beneficial since gold often behaves differently from equity and debt and has a low or negative correlation with these asset classes, influencing the overall risk-return profile. The analysis covers rolling returns from September 2001 to June 2026 using the Crisil 10 Year Gilt Index for debt and BSE Sensex TRI for equity.
