Risk shows up where the swings are,
not where the rupees are.
Equity moves about 18 percent in a year. Debt about 5. So a rupee of equity carries far more risk than a rupee of debt. Same three books, capital split vs how the risk actually splits. Illustrative.
| Capital split |
Equity risk |
Debt risk |
| 80 equity . 20 debt | 98 | 2 |
| 60 equity . 40 debt | 94 | 6 |
| 22 equity . 78 debt | 50 | 50 |
A 60/40 book splits the rupees almost evenly and the risk not at all. To make debt actually carry half the risk you hold barely a fifth in equity. The 40 percent debt sleeve was never the brake the brochure said it was. It is a passenger.