As of April 2025, investors are grappling with a double blow—declining equity market returns and falling fixed deposit (FD) interest rates. With both popular asset classes under pressure, financial experts are urging investors to take a more diversified and disciplined approach to protect their capital and earn reasonable returns.
If you’ve been wondering how to allocate your investments in these uncertain times, this article breaks down what’s going wrong and what you can do about it.
Why Equities Are Underperforming
Over the past six months, stock markets have seen increased volatility due to a combination of tariff hikes, elevated valuations, and reduced earnings growth. These factors have resulted in equities underperforming compared to previous years, especially when benchmarked against debt instruments and gold.
High expectations from listed companies were met with reality checks as global trade tensions and domestic policy shifts influenced both sentiment and returns.
FD Returns Are Also Sliding
Adding to investor worries, banks have started lowering interest rates on fixed deposits. This decline follows recent repo rate cuts by the Reserve Bank of India (RBI), which has led banks to pass on the benefits of cheaper capital to borrowers while offering lower returns to savers.
The result: investors are finding it harder to rely on traditional FDs for steady income, especially with inflation still eroding real returns.
Where to Invest Now: Smarter Allocation Strategies
Experts suggest shifting focus to more balanced and forward-looking investment strategies. Here are three recommendations gaining popularity:
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Gold as a Hedge: With rising global uncertainties, gold has once again proven to be a reliable store of value. Investors may consider adding gold ETFs or sovereign gold bonds to diversify their portfolio.
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Longer Duration Debt Funds: Debt funds with longer maturity profiles tend to benefit from falling interest rates. These funds can offer better capital appreciation than short-term instruments in a declining rate environment.
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SIPs in Equity Mutual Funds: While equity valuations remain high, corrections are providing opportunities to enter gradually. Systematic Investment Plans (SIPs) help reduce market-timing risks by averaging purchase costs over time.
Key Takeaway: Stay Disciplined, Stay Diversified
Rather than reacting emotionally to market shifts, investors are advised to stay consistent with their investment plans. Using SIPs, balancing assets between equity, debt, and gold, and focusing on long-term goals can help weather this transitional period.
FAQs
Why are equity returns falling in 2025?
Equity returns have declined due to multiple factors including high valuations, weaker-than-expected corporate earnings, and tariff-related global volatility.
Why are FD interest rates going down?
Banks are reducing FD rates in response to repo rate cuts by the RBI, making borrowing cheaper but lowering returns for deposit holders.
Is it a good time to invest in gold?
Yes, gold is considered a safe-haven asset. With rising uncertainty and declining FD returns, many investors are turning to gold as a hedge.
How can long-duration debt funds help?
Long-duration debt funds benefit from falling interest rates as the value of their holdings increases. They can offer better returns than short-term instruments in such phases.
Should I stop my SIPs during a market correction?
No. SIPs are designed to average out costs over time. Stopping them during corrections can cause missed opportunities when markets recover.
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Aanchal is a passionate writer with a keen interest in storytelling, content creation, and creative expression. She enjoys exploring diverse topics and crafting engaging narratives that captivate readers.