The market, which has been on a steady upward trajectory since the Covid period, has faced several bouts of volatility triggered by factors such as geopolitical tensions, foreign investor sell-offs, high inflation, elevated interest rates, reciprocal tariffs, and weakening corporate earnings. Despite these challenges, domestic investment flows have remained robust. Meanwhile, the bond market has also shown resilience at various stages, supported by a decline in government bond yields — which had peaked in mid-2022 — and the Reserve Bank of India’s decision to pause interest rate hikes since February 2023.
Investors are grappling with challenges such as US trade tariffs, even as domestic growth and consumption show signs of revival. In this scenario, making prudent investment decisions across asset classes becomes essential. Asset allocation remains the most critical factor influencing a portfolio’s long-term performance.
The leading performers in the asset market tend to change with economic cycles. Equities generally deliver strong returns when the economy is expanding, while bonds or fixed deposits perform better during periods of slowdown or recession.
Between 2006 and 2024, equities — represented by the Nifty 50 TRI — outperformed in 16 of those years. In contrast, bonds, as measured by the CRISIL 10-Year Government Bond Index, led the way in the remaining years. A balanced investment approach that includes both equities and bonds can therefore help investors achieve stable, long-term gains.
It is often difficult for the average investor to buy when prices are low and sell when they are high, as decisions are frequently driven by fear and greed. For instance, during market upswings in September 2024, October 2021, September 2018, and September 2017, there was a surge in domestic investor inflows. However, many tended to withdraw investments during subsequent market declines.
For small investors, asset allocator funds (AAFs) can be a more effective option, as they strategically invest across multiple asset classes. Fund managers determine the optimal allocation by analysing valuations, market trends, and broader macroeconomic factors.
The ICICI Prudential Asset Allocator Fund is one such scheme. It primarily invests in quality equities, bonds, and gold mutual fund schemes or ETFs, guided by an in-house valuation model designed to ensure a balanced and data-driven investment approach.
The right allocation within a portfolio is determined not only by the valuation of equities but also by assessing opportunities in the debt market. As of August 29, 2025, the fund delivered a one-year return of 6.21%, along with a three-year compound annual growth rate (CAGR) of 13.87% and a five-year CAGR of 14.60%.
In addition, the fund offers tax benefits. Long-term capital gains from this scheme are taxed at a rate of 12.5%, and investors can avail themselves of this advantage by holding their investments for a minimum of 24 months.
{The author is the founder of Wealthstory and an economist.}