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Asset allocation key to wealth creation for new-age investors

Gold is a natural hedge against inflation and is typically negatively correlated to equity. The best way to invest in gold is Sovereign Gold Bonds (SGBs).

November 04, 2021 / 09:19 AM IST
Representative image

Representative image

Atanuu Agarrwal, Co-founder at Upside AI

The best way to create wealth is sound asset allocation. And, sound asset allocation means to be invested across uncorrelated asset classes. For example, stocks and fixed deposits (FDs) are assets with zero correlation i.e. when stocks move up or down, the FD rates do not move in tandem. Hence, it is important that both these asset classes be part of your portfolio.

Asset classes can be broadly classified under five heads. These are
(i) Equity – stocks, equity MFs/ETFs etc.
(ii) Debt – FDs, debt MFs, bonds, Provident Funds etc.
(iii) Gold – Physical gold, gold ETFs, Sovereign Gold Bonds, digital gold etc.
(iv) Real Estate – Physical assets, REITs, InvITs etc.

(v) Cryptocurrencies – Bitcoin, Ethereum etc.

There is no one-size-fits-all type asset allocation. Specific asset allocation will highly depend on personal finances and circumstances.

Typically, for young investors, I would recommend a much higher allocation to ‘riskier’ assets like equities and cryptocurrencies. A possible standard allocation for someone in the 25-35 age group could look something like this:
(i) Equity – 60-70 percent
(ii) Debt – 10-20 percent
(iii) Gold – 5-10 percent
(iv) Real Estate – 0-5 percent

(v) Cryptocurrencies – 0-5 percent



I would bucket equity exposure in three categories – large-caps, mid-and small-caps, and international. Large-caps, which include the largest companies in India, would be less-riskier (hence, probably will produce lower returns in the long-term) than mid- and small-caps. International exposure provides a different type of diversification, away from India-linked risk.

For large-caps, I would split it evenly between a Nifty50 ETF/index fund and a Nifty Next 50 ETF/index fund. In my opinion, it is very hard for ‘actively managed’ mutual funds in the large-cap index to generate any return over the benchmark index (like the Nifty50 or Nifty 100). So, one should avoid paying higher fees.

On the other hand, I would pick a couple of actively managed mutual funds in the small- and mid-cap space. It is important to conduct research (methodology, performance, fees etc.) on these funds. There are many websites that provide this data. Also, it is important to subscribe to ‘direct’ plans (as against ‘regular’ plans). Direct plans charge significantly lower fees.

On the international side, I would pick a couple of ETFs that track the NASDAQ 100 and S&P500.

Active funds may need to be reviewed periodically to make sure performance is in line with stated objectives. For ETFs/index funds, make sure to pick the one’s with the lowest fees and tracking error.


Max out contribution to Public Provident Fund (PPFs). They offer attractive and practically risk-free interest rates with unbeatable tax benefits.

Around 5-10 percent of assets should simply be in bank FDs or ‘liquid’ mutual funds that ensure funds are easily accessible in case of an exigency.

The rest can simply be allocated into the RBI floating rate bonds (that are easily accessible through most net banking portals). These are safe instruments that offer interest rates generally in line with the market (around 7.15 percent). However, the principal is locked up for around 7 years.


Gold is a natural hedge against inflation and is typically negatively correlated to equity. The best way to invest in gold for the long term is Sovereign Gold Bonds (SGBs). In addition to capital gains exemption (if held to maturity of around eight years) on gold price appreciation, the bonds also pay 2.5 percent per annum as interest on the initial investment. More information can be found on RBI’s website.

Real Estate

Rather than investing in physical assets, Real Estate Investment Trusts (REITs) are an attractive avenue to invest in real estate. One could consider a balanced allocation amongst the three REITs listed in India at the moment.


Finally, a small and stable direct exposure to large cryptocurrencies like Bitcoin, Ethereum etc. may also help diversify your portfolio by adding an uncorrelated (theoretically) asset class. However, beware of extreme volatility, potential legal issues, and high probability of capital loss.

For non-professional investors, periodic trading in stocks or cryptos directly should not be considered as part of one’s asset allocation. It is closer to gambling than investing, and as with any trip to Goa or Las Vegas one should only dabble with small sums that one is willing to lose in their entirety. It’s not asset allocation, it’s just entertainment.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Atanuu Agarrwal is the Co-founder of Upside AI.
first published: Nov 4, 2021 09:19 am

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