Investing Amid Falling Equity, FD Returns: Diversify All-Equity Portfolio into Gold, Fixed Income for Stability

Continue purchasing equity funds systematically to average down purchase costs

- HIMALI PATEL

Returns from equities have shrunk over the past six months owing to tariff-induced volatility, high valuations, and declining earnings. Fixed deposit (FD) returns have also begun to fall, as banks cut deposit rates in response to repo rate cuts. With their two favorite asset classes facing the heat, investors must follow a well-considered strategy to handle these challenging times.

Several asset classes have underperformed recently. "If we look at returns at the end of financial year 2024-25, equity gave back some of the gains from past years and underperformed debt and gold," says Sanjay Bembalkar, head of equity, Union Asset Management Company (AMC).

Mid- and smallcap equity funds have, on average, corrected 11.8-14.1 per cent over the past six months due to valuation concerns and weak earnings. Bembalkar points out that the momentum factor has also lagged. US-focused exchange-traded funds and index funds focused on the S&P 500 and Nasdaq indices are both down about 8 per cent over the past six months.

FD returns, too, have declined due to the Reserve Bank of India's (RBI) cumulative rate cuts of 50 basis points in 2025. "This has led to lower yields and real returns from FDs barely keeping pace with inflation," says Manish Goel, founder and managing director, Equentis Wealth Advisory Services.

Despite volatility, some assets have delivered. "Gold has done well due to the uncertainty created by tariff wars and geopolitics," says Bembalkar.