Equity vs Debt: Where Should You Put Your Money?
A clear comparison of equity and debt investments — risk, returns, taxation, and how to split your money based on your goals and age.
Every investment falls into two broad buckets: equity (ownership) and debt (lending). Understanding the difference is the foundation of all financial planning.
Equity = You Own
When you buy a stock or equity mutual fund, you become a part-owner of businesses. If the business grows, your investment grows. If it struggles, your investment falls. Returns: 10-15% long-term. Risk: prices can drop 30-50% in a crash.
Debt = You Lend
When you buy a bond, FD, or debt fund, you're lending money to a company or government. They promise to pay you back with interest. Returns: 6-8%. Risk: very low (unless the borrower defaults).
The Key Differences
| Equity | Debt | |
|---|---|---|
| Returns | 10-15% long-term | 6-8% |
| Risk | High (short term) | Low |
| Best for | Goals 5+ years away | Goals 1-3 years away |
| Tax | 12.5% LTCG after 1 year | Slab rate |
| Inflation beating? | Yes (comfortably) | Barely |
How to Split Your Money
Simple rule of thumb: Equity % = 100 - Your Age. At 25, put 75% in equity. At 50, put 50% in equity. This automatically becomes conservative as you age.
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This article is for informational and educational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified professional before making financial decisions.