Equity = 15% returns. PPFAS's Rajeev Thakkar busts this myth

Summary: Equity is some kind of magic bullet. For many new investors, that’s the assumption. But in a candid chat with Value Research, PPFAS CIO Rajeev Thakkar busts this popular belief that equity investing is a guaranteed ticket to 15 per cent returns. Let’s see what he believes is crucial for long-term success.

For many new investors entering the stock market, there’s a widely held belief: equity should give you 15 per cent annual returns. Anything less feels like a disappointment.

Rajeev Thakkar, CIO at Parag Parikh Financial Advisory Services (PPFAS), calls this the “equity illusion” — and warns that it’s setting unrealistic expectations.

“Just because bonds give you 5–6 per cent doesn’t mean equity will deliver 2x or 3x. Markets don’t reward you just for showing up,” he said in a recent Value Research interview.

Equity often needs time

Another common misunderstanding, Thakkar points out, is how people interpret the term long-term. “People assume that holding equity for over a year qualifies as long-term — probably because that’s how the Income Tax Act defines it. But from an investing standpoint, one year is nothing.”

History agrees.

Thakkar reminds us that from March 1992 to March 2003, the Indian stock market went nowhere — a lost decade of flattish or even negative returns. During this stretch, the Sensex actually gave annualised returns of -0.44 per cent, to be precise.

And this isn’t a local phenomenon. The US market saw its own dull phase from 2000 to 2010, and Japan's equity markets have struggled for decades. “Even China has experienced such a phase,” he notes.

So, if your horizon is one or two years, and you’re expecting 15 per cent annual returns, equity might disappoint you — especially during phases when valuations are stretched or global risks are high.

“Equity has the potential for higher returns, but that plays out over very long periods, and even then, not linearly. The path is never smooth,” he said.

The case for balance

Thakkar believes equity is best suited for investors who have long investment horizons and the ability to regularly invest — and stay put. But for anyone with moderate or shorter timelines, he strongly recommends building a balanced portfolio that includes fixed-income investments.

Because when equity markets fluctuate, and they will fluctuate, at least over short term, having your entire portfolio in stocks can feel like riding a roller coaster with no seatbelt.

That’s where diversification comes in.

By spreading your investments across different asset classes like equity, debt and even gold, you protect yourself from being overly dependent on the performance of a single market. This doesn't just reduce anxiety, it improves the consistency of your long-term returns.

Think of equity as the engine that drives growth, and fixed income as the stabiliser that keeps your journey smooth. On their own, each has strengths and weaknesses. Together, they create a more reliable path to your goals.

In fact, during years when equity underperforms or delivers negative returns, well-chosen debt funds can provide steady income and peace of mind.

Therefore, diversification isn’t just for the risk-averse. It’s for the smart investor who knows that building wealth is not about beating the market every year, it’s about staying invested across all kinds of years.

Final thought

The stock market is not a lottery machine. If you're in it expecting guaranteed 15 per cent returns in one or two years, you may be better off adjusting either your expectations or your investment strategy.

In fact, many first-time investors enter the market assuming equity will deliver sky-high returns consistently. When those expectations aren’t met — or worse, when markets fall — they panic. Some exit in a hurry, locking in losses. Others swear off equity forever, dismissing it as a casino.

But the real issue was the approach.

Taking undue risk without understanding volatility is like flying blind. 

Which is why diversification isn’t just a good strategy, it’s emotional insurance. It helps you stay invested through market cycles and avoid making permanent decisions based on temporary losses.

If you're new to investing and unsure about how to build that diversified portfolio, there's a simple place to start: aggressive hybrid funds.

These funds strike a balance by investing around 65 to 80 per cent in equity and the rest in fixed income. This way, you participate in the growth potential of stocks, while having some cushion during market downturns. They’re professionally managed, rebalanced regularly and remove the burden of choosing individual equity or debt funds right away.

Over time, as your confidence and understanding grow, you can fine-tune your portfolio and pick your own set of equity and debt funds. But to begin with, aggressive hybrid funds offer a smoother, more balanced entry into the world of investing.

Want to start a Rs 5,000+ SIP in an aggressive hybrid fund?

In addition to exploring top-rated debt and equity funds handpicked by the experts at Value Research Fund Advisor, we also have four aggressive hybrid funds recommended by us in our Analyst’s Choice section.

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This article was originally published on July 24, 2025.