Is your money doing one of two things: snoozing in a bank deposit that barely keeps pace with inflation after tax, or chasing the latest promise of outperformance — AI stocks, derivatives or crypto?
Indian households still park 43% of their financial assets in bank deposits, according to RBI data. At the other extreme are risk-chasers. Despite nine in 10 traders losing money, SEBI data shows the equity derivatives segment recorded an average daily traded value of roughly ₹2.63 lakh crore in FY25, more than double the ₹1.20 lakh crore in the cash market. Retail investors account for about 35% of derivatives volumes.
Neither extreme builds wealth. Bank deposits preserve nominal capital but often lose purchasing power after tax and inflation. Chasing high returns usually means taking disproportionate risks. Long-term investing lies in between: taking only as much risk as your goals require.
According to Jinay Salva, founder of Mumbai-based financial services firm Indigenous Investors, “The average investor does not understand the nuances of capital markets, thus fear is always there. The easiest way to overcome fear is to go for what performed best in the recent past. Our mind extrapolates it to the future too and that seems to be the safest choice.”
The objective is not to maximise returns but to take enough risk to meet long-term goals without taking risks that could derail them.
Balance comes from purpose
Investing ₹10,000 every month in a diversified, moderate-risk portfolio can grow to ₹1 crore in about 21 years at an assumed annual return of 12%. Continue for another 19 years and the same monthly investment becomes ₹9.8 crore. Compounding, not extraordinary annual returns, creates wealth. Besides, 12% is not an aggressive assumption — the Nifty 50 has delivered annualised rolling returns of roughly 11–13% over 10-year periods during the past five years.
Investing begins with defining the goal and its deadline: a child’s higher education in five years, retirement in 20 years or capital for a business in 10. Once the destination and timeline are clear, the investment strategy follows.
Time horizon
Time horizon determines risk. Money needed within two to three years belongs in capital-preservation assets such as fixed deposits, liquid funds, short-term debt funds or arbitrage funds. Goals three to seven years away can combine fixed income with equity. For goals beyond seven to eight years, growth assets held with a buy-and-hold approach deserve the largest allocation.
Salva says, “When we speak to clients, we don’t have very structured conversations around goals. Rather we try to speak to them about milestones in life and what are the things that matter to them. Investment plans are then structured around those milestones. It’s a lot of constructive story telling as well rather than drawing out a process or preaching the right approach.”
Risk capacity versus risk tolerance
Knowing equity is volatile is not the same as living through the volatility. During the 2008 global financial crisis, domestic equity markets corrected by as much as 60%. Could you have stayed invested through that? That is risk tolerance.
Risk capacity is different. If you have a stable income, a suitably sized emergency corpus and adequate life and health insurance, your finances can withstand a market drawdown. Whether your emotions can is another matter. Investors with lower risk tolerance may be better served by a lower allocation to equity.
Stick to an allocation
Asset allocation simply matches investments to goals. Money for a destination wedding two years away belongs largely in fixed income. Retirement that is 15–20 years away belongs mainly in growth assets. Different goals require different mixes of assets.
According to Sonesh Dedhia, CEO and founder of Manek Financials, a SEBI registered investment advisor, “Today there are many new and alternate investment options, not being present across the spectrum at times makes clients feel left out. But many of these add a very high risk to the portfolio, thus, allocation is automatically limited. Consequently, the overall portfolio return isn’t materially impacted. Why complicate and add risk, when the aggregate portfolio return doesn’t benefit much?”
Allocation also needs maintenance. Rebalance when one asset class grows well beyond its target weight or when a financial goal approaches. In 2025, gold prices in India rose about 70% while the Nifty 50 returned around 10%. A portfolio that began the year with 10–15% in gold could end it overweight. Rebalancing means trimming the outperformer and adding to underperforming assets, keeping the portfolio aligned with its target mix rather than emotions.
The second trigger is proximity. Equity earmarked for a long-term goal should gradually move into stable-return assets 12–18 months before the money is needed. You do not want a 2008-style drawdown in the year you need the funds.
“Having a structured allocation is part of our philosophy and helps us and our investors keep objectivity in place. Clients who started with us in 2020 and allocated to gold as part of the overall allocation strategy, thus, they were able to build an early hedge and their overall portfolio returns show that,” says Dedhia.
Once the allocation is set, the choice of products becomes straightforward: deposits or debt funds for stability, equities for growth, and gold, international investments and alternatives for diversification as the portfolio expands.
Discipline over excitement
The deposit-only saver steadily loses purchasing power to inflation. The return-chaser loses to the odds: by SEBI’s own estimates, nine out of 10 equity derivatives traders lose money.
Constant market noise and social media amplify fear and greed, encouraging unnecessary action. Successful investing is usually far less exciting: define the goal, match investments to its timeline, set an allocation, rebalance periodically and stay the course.
None of it is exciting. That’s rather the point.That’s precisely why it works.
Lisa Pallavi Barbora is a freelance writer and author of Money & Her
