Impact of debt-equity ratios on investment risk and performance
A 25-year analysis conducted by WhiteOak Capital Mutual Fund indicates that incorporating equity into a debt-focused portfolio enhances returns and can lower initial risk levels. For instance, a portfolio split 90-10 between debt and equity yielded 7.97% returns with 5.76% volatility, outperforming a 100% debt portfolio, which saw 6.77% returns and 6.37% volatility. While increasing the equity portion beyond 20% boosts returns, it also leads to a sharp rise in risk, with pure equity portfolios reaching a volatility level of 25.35%.
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