The proportion of equity or debt in the portfolio of an investor is a function of the risk appetite of the investor. It is commonly observed that younger investors have a higher proportion of equity in their portfolio as it enables them to hedge market risks and reap the benefits of investing for the long term. Investors in the middleage group would prefer a balanced fund as it has an equity mix of almost 65-70 per cent of the portfolio and the remaining component gets invested in debt funds. Having said so, it would be in order to clarify that equity carries market risk while debt carries interest rate and credit risk. But, as mutual funds usually invest in rated papers, credit risk remains hedged to a greater extent.
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