Vasant G Hegde Retired banker.
DH illustration
The year 2025 was a mixed year for investors with equity, debt, and gold giving differential returns. Risk-averse investors who were depending on interest income watched banks slashing interest rates on fixed deposits. Investors in equity had a tepid year. But how will 2026 pan out for investors? Let us look at the different asset classes and what the year holds for you.
Equity as an asset class
The Indian equity markets were a mixed bag with the Sensex giving a return of 9.50% during the calendar year, having gone up from 80,000 and ending the year around 85,000 levels. The NIFTY had a slightly better year having given a return of 11%. Investors in small caps had a bad year with NIFTY small cap index declining by 8%. The mutual fund industry did reasonably well during the year and the Assets Under Management (AUM) went up from Rs 67 lakh crore to Rs 81 lakh crore, growing by 21%. It was a great year for corporates which raised a record Rs 1.75 lakh crore through initial public offerings during the year. For many promoters IPOs proved to be the exit routes funded by retail investors. Investors focusing on achieving financial goals should continue to invest in equity through SIPs in mutual funds.
Debt as an asset class
It was a decent year for debt mutual funds with most of them delivering returns better than bank FDs thanks to the fall in interest rates. There is an inverse relationship between interest rates and bond prices. The yields on 10-year G-sec have been hovering around 6.50%. Investors who find it difficult to understand the dynamics of interest rates and bond prices can simply invest in dynamic bond funds and let the fund manager do the allocation across duration. With interest rates on deposits coming down due to a series of repo rate cuts by RBI totaling to 1.25% during the year, investors, mainly the senior citizens, can continue to park their savings in small saving schemes like Senior Citizen Savings Scheme which offer a tenure of 5 years offering 8.20%. The saving grace is that the government has not reduced interest rates on small saving schemes offering an arbitrage opportunity for bank depositors.
Gold & silver as asset classes
The conventional advice given by experts that investors should allocate a maximum of 10% to 15% to gold, and now silver in their portfolio was challenged and tested as both the metals had a stellar year with gold climbing to around $4,420 per troy ounce, from $2,640 at the beginning of the year- giving a return of 68% during the year. The central banks across the world continued to accumulate gold and go on an aggressive buying spree and their appetite did not seem to have declined during the year.
Silver did much better than gold and had an outstanding year, having gone up from $30 per ounce to $70 at the end of the year giving a return of 130% driven by demand from the industrial side and supported by growth in the solar, electric vehicle, and data centre sectors. Both precious metals will continue to benefit in the new year on rate cut hopes and escalating geopolitical tensions. Investors should stick to asset allocation and focus on their goals rather than try to rejig their portfolio and allocate more to these precious metals.
Bitcoin as an investment option
Bitcoin (BTC) had a disappointing year with prices moving up from $92,000 in January to $1,21,000 before crashing in October and is currently trading at $89,000. The recent accumulation by institutions, comprising corporate purchases totaling billions, was the primary driver of renewed interest in BTC as a store of value and with the supply being limited, it should do well during 2026 too. One note of caution though for investors. Unlike equity where you can know the intrinsic price of a stock by studying various ratios and where you can understand the underlying business of a company, it is difficult to find out the intrinsic price of a BTC and you can never know whether at the current price bitcoins are undervalued or overvalued.
In the end, it always pays to have a diversified portfolio comprising all asset classes.