Investing for the next 10 years? Experts explain how much to put in equity mutual funds, gold, debt and global stocks

A 10-year investment horizon gives investors time to benefit from equity market growth, but choosing the right mutual fund categories is just as important as staying invested.

For investors looking to invest in the current volatile market, the focus should be on building a diversified portfolio rather than chasing the mutual fund categories that have delivered the highest recent returns. Relative valuations, risk appetite, existing investments and the purpose of the financial goal should determine the allocation, experts said.

Rahul Jain, president and head at Nuvama Wealth, recommends a core-and-satellite approach for a moderate-risk investor. He suggests allocating half of the equity portfolio to Nifty 50 and Nifty Next 50 exchange-traded funds (ETFs), with the remaining half spread across two mid-cap funds and two small-cap funds. This approach combines exposure to established businesses with companies that have the potential to grow faster.

Vaibhav Porwal, co-founder of Dezerv, suggests a different starting allocation for a 10-year equity investor, with 35% in large-cap funds, 25% in flexi-cap funds, 25% in mid-cap funds and 15% in small-cap funds. The right mix, however, depends on the investor’s financial goals, existing holdings and ability to withstand market volatility.

Large-cap funds gain favour as valuations moderate

Recent market corrections have made valuations an important consideration when deciding how much to allocate across market capitalisations. Porwal favours a modest overweight to large-cap stocks while retaining exposure to mid-cap and small-cap companies.

According to Porwal, the Nifty 50 trades at about 19.3 times trailing earnings, below its five-year median of about 22 times. The Nifty Midcap 150 trades at about 28 times earnings, against its five-year median of about 30 times. In comparison, the Nifty Smallcap 250 trades at about 34 times earnings, roughly 20% above its five-year median of 28 times.

“These indicators shape the target allocation, and the investor rebalances back to that target once a year,” Porwal said.

Jain also sees a case for large-cap exposure, pointing to the correction in large-cap stocks over the past 24 months. Valuations in sectors such as information technology, private banking and fast-moving consumer goods have moved closer to their long-term averages, he said. Mid-cap and small-cap stocks have corrected too, but continue to trade at a premium to their respective 10-year averages.

For mid-cap and small-cap exposure, fund selection becomes particularly important. Jain recommends evaluating fund managers on their ability to navigate previous market cycles and deliver consistent risk-adjusted returns.

Investors should also avoid making frequent allocation changes in response to short-term market movements. A defined target allocation and periodic rebalancing can help keep the portfolio aligned with the original investment strategy.

Why a 10-year portfolio should include debt and gold

A long investment horizon can support a relatively high equity allocation, but it does not automatically justify an entirely equity-oriented portfolio. A sharp correction close to the goal can affect the amount available when the money is needed.

Porwal suggests that an investor with a moderate to high risk appetite consider allocating about 65% to Indian equities, 5-10% to international equities, 10% to gold and the remainder to debt.

Gold, he said, should be treated as a strategic allocation rather than a short-term bet on prices. Investors can rebalance their holdings if gold rises above or falls below the target allocation.

Debt investments can provide stability and liquidity. Porwal favours short-duration and accrual debt funds in the current uncertain interest-rate environment, while advising investors to account for existing investments in the Employees’ Provident Fund (EPF), fixed deposits and Public Provident Fund (PPF) before adding more debt exposure.

Jain also recommends including debt funds and gold in the broader portfolio. Debt funds provide liquidity and stability, while gold can diversify the portfolio during periods of uncertainty.

Investors should gradually reduce equity exposure in the final two to three years before their financial goal, Porwal said. Moving money towards debt as the goal approaches can reduce the risk of a late market correction disrupting the plan.

International equities can diversify long-term portfolios

International equity funds can help Indian investors diversify beyond domestic markets and access businesses that are less represented in India, including global technology companies, semiconductor manufacturers, healthcare businesses and aerospace firms.

Jain suggests allocating 10-15% of a portfolio to foreign stocks. He said this can provide exposure to international businesses and help hedge against rupee depreciation.

Porwal recommends a 5-10% allocation, particularly for investors who expect to meet future expenses in foreign currency, such as overseas education. Holding some international assets can help offset the impact of a weaker rupee on the cost of such goals.

However, investors should avoid choosing international funds solely because of their recent returns. Porwal noted that markets such as the US, Taiwan and South Korea have rallied on expectations around artificial intelligence, with some of that optimism already reflected in prices.

He prefers diversified global funds over narrowly focused thematic funds and recommends building international exposure over several months. Investors should also check whether fresh investments are being accepted, as domestic feeder funds have at times paused subscriptions because of overseas investment limits. International funds may also have different tax treatment from domestic equity funds.

Which mutual fund categories should investors limit?

Even with a 10-year horizon, investors should not assume that every equity fund category is suitable for their portfolio.

Jain advises investors with limited risk appetite to avoid or limit thematic and sectoral funds, as well as new fund offers (NFOs). These investments may concentrate exposure in specific market themes or sectors and require investors to assess whether the strategy fits their overall portfolio.

The broader approach should be to keep the portfolio diversified, select funds based on their investment strategy and track record, and use systematic investment plans (SIPs) to spread investments over time.

Jain prefers SIPs because they spread investments across the month and help capture intra-month market fluctuations.

Ultimately, a 10-year horizon gives investors time to stay invested through market cycles, but it does not remove the need to manage risk. A portfolio built around an appropriate equity allocation, complemented by debt, gold and international exposure, can help investors balance long-term growth with the need to protect their financial goals.