New Delhi, Sept. 15 -- For investors building a long-term portfolio, the question is not just how much return they can earn, but also how much loss they can tolerate when markets fall. A portfolio with a higher allocation to debt can reduce the impact of an equity market correction, but the protection comes at a cost. Over the long term, a larger debt allocation can also lower the portfolio's return.

A FundsIndia analysis of historical rolling returns illustrates this trade-off by comparing portfolios with different combinations of equity, debt and gold. The analysis uses Nifty 50 TRI for Indian equity, S&P 500 total returns for US equity, gold returns and a basket of low-duration and corporate bond funds for debt. The portfolios were re...