Is higher equity allocation mandated?

The euphoria of equity markets over the last 2 years has increased the risk tolerance of many investors.

In this back drop, it would be interesting to revisit historical data to evaluate whether higher returns are commensurate with higher risk

The data below captures Sensex returns over the last 36 years. Though equity has given a greater than 15% compounded return, there are long periods wherein returns are sub par.

Returns over a 5 year period
For the period ending Oct 1 1997( 92-97) the compound returns are a measly 3.32%. Note this process of sub par returns continue till Oct 2004. Similarly has been the 5 year returns of the Sensex for Oct 2011 ( 2006 to 2011) has been a meager 5.73%. The pattern continues till date.

On evaluation one will find that sub par returns are bunched together ( 1997 to 2004) and again from 2011 to date. Similarly, the out performance are also bunched together- Sep 85 to 95 and again from Sep 2005 to 2010

Loss probability of generating negative returns on the Sensex. on a 5 year basis is 6%


Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

About the author

This is a Guest post written by Sriram Suryanarayanan. He is AMFI Registered Mutual Fund Advisor and can be contacted via