Education . Risk Contribution . 3 of 3 RupeeCase
Three things the capital split hides.
01
Capital weight is not risk weight. A rupee in stocks carries far more swing than a rupee in bonds, so the split you see on paper is not the split your stomach feels in a bad year.
02
Risk pools in the loudest sleeve. The asset with the biggest swings eats the risk budget even at a smaller slice of money. Read the contribution to risk, not the pie chart of capital.
03
Balanced means balanced in risk, not in rupees. Splitting the risk evenly is roughly a fifth in stocks, not half. The further you sit from that, the more your balanced fund is just an equity fund wearing a cardigan.
A 60/40 is a capital split dressed up as a risk split. The money is balanced. The risk is not, it is almost all in the stocks. The pie chart shows the rupees. The drawdown shows the truth.
How risk weight differs from capital weight rupeecase.com/learn