Whether equity investment is necessary?

During the recent conversation with my client, he asked me “Our parents never invested in equity and living a comfortable life. Hence, is it necessary for me to invest in equity?”. I felt it is a valid and wonderful question. Let us discuss this aspect.

equity investment

We all discuss so many stories, theories and magic numbers of long term investors with respect to equity investment. As an investor, is it necessary for me to invest in equity?

My client shared his parent’s experience that they never touched any market-linked products in their life and lived wonderfully and enjoying their retirement life currently with joy. In such a situation, whether it is necessary for us to take undue headache and risk of investing in equity and monitoring it with wide eyes open regularly?

Let me explain one more scenario of my one more client. In his case, his retirement goal is around 15 years away. Hence, I suggested him 60:40 equity and debt allocation. Return on equity I considered 10% and from debt it is 6%. Hence, combined together the return on investment for a retirement portfolio is 8.4%.

In his case, he already accumulated a huge amount through EPF. Hence, considering the current scenario of retirement goal asset allocation, it is heavily tilted towards debt (EPF and PPF) and marginally towards equity. In such a situation, he asked me one question “You are suggesting 60:40 between debt and equity. However, to reach this level of asset allocation, it takes me around 10 years. How to do?”

My simple answer is that the current EPF rate is more than what 60:40 ratio of equity and debt is providing him. Hence, as long as Government is giving us such a good SUBSIDY through EPF interest rate, then why to bother about from which asset class I generate the returns. He has to bother only when the interest rate on EPF fall below the 8.4% (Expected return expectation from equity and debt portfolio).

Whether equity investment is necessary?

I shared with you all these two instances. The reason is that, both the scenarios force us to think the basic question of whether equity investment is necessary to reach our financial goals?

Is equity investment is HYPED because of media and so-called experts? Let me answer these using two scenarios.

# Equity is not necessary if you are ready to invest more

Assume that you wish to accumulate Rs.1 Cr (Future Value) after another 10 years for your financial goal. If you are wishing to stick to 5% to 6% debt products, then you have to invest monthly around Rs.60,000. At the same time, if you take a certain calculated risk by proper asset allocation of 60:40 between equity and debt, then assuming the return expectation of 8.4%, you have to invest monthly Rs.53,000.

Hence, if you are ready to take a certain calculated RISK, then you have to invest less. At the same time, if you are totally risk-averse investors, then you have to fund more to achieve your financial goals. The choice is left with you. Never listen to someone else theory of to achieve the goals, one must invest in equity. Because your risk-taking ability is entirely different from the person who is guiding you.

However, at the same time, just think a while the biggest value diminishing the power of your money i.e INFLATION. If your target is to achieve the real return (Real Return=Return on Investment-Inflation Rate), then you must include equity for your long term goals.

# Reduce your expectation with respect to goals

Many of our parents are living with minimal requirements. Their basic needs are FOOD, CLOTH, and SHELTER in a simple way. Hence, they may be living happily with whatever they accumulated. However, in our case, we are expecting something MORE. This more not comes with you free of cost. You have to accumulate MORE to enjoy this life of MORE.

Our parents mainly not invested because the equity in India is still at the nascent stage. Hence, they might stay away and used traditional debt products. It does not mean I must also follow the same strategy.

As I pointed above, if you wish to be satisfied with the RISK-FREE product, then either you have to reduce your goal corpus or invest more.


  • Yes, equity is HYPED by media and experts. But it does not mean you have to follow the herd. At the same time, think twice about INFLATION.
  • You are the best financial planner on this earth. You can judge your risk appetite better than anyone else on this earth. Hence, if you can’t digest the volatility of equity, then as I have explained above, stick to debt and invest more or reduce the cost of the goal.
  • Your foremost reason for investing is to get the corpus ready at the time of goal. Whether you achieve that through debt, equity or with other asset class, is up to you. However, understanding what works best for you is the role of a planner. In your case, you are the BEST PLANNER.
  • Your major focus of investment should be on how safely achieve the goal rather than maximizing the returns. This is where many of us fail.
  • Risk is everywhere nowadays. The money you are keeping in your savings account is also risky. Hence, the only way left for us is to LEARN THE ART OF MANAGING RISK.
  • Equity is NECESSARY for your long term goals. But it does not mean I jump into the well BLINDLY.

10 thoughts on “Whether equity investment is necessary?”

  1. Superb Article particularly the point of ‘Equity is not needed if you are able to save & invest in debt instruments more’. First time am reading such a statement from a CFP. However most people chase Alpha and am tired of telling this.

    I don’t know what is wrong these days but even fund managers being educated from elite universities/colleges, specialized in finance and dedicated to only investing side and long experience are not able to generate positive returns in equity markets (look at small cap and mid cap). What chance a normal person has even he constructs a equity portfolio. Equity has also become like MLM where in few guys are making money at the expense of many innocent investors.

    On the other side, we have ADAG, YES, ZEE, DHFL and IL&FS who employed highly educated staff and yet they can’t do due diligence of what they lend.

    People who aren’t having finance background like Engineers, Doctors, Lawyers, Govt employees (State & Central), Operations, Maintenance and sales etc., shouldn’t get into Equity.

    Here are my rules for Equity.

    1. Never get into Direct Equity and don’t even think of derivatives
    2. If you have urge to get in to Equity, go through MF route with SIP and enter before 40 years of age. Beyond 40, the ability to absorb low/negative returns diminishes until unless you are full time finance professional

  2. Also want to add that many of our parents also have family pension but we won’t. So PROPER financial planning is indispensable.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top