Equity and Debt are two of the asset classes which could be looked at by a retail investor for generating returns. Liquidity and Risks associated with returns are also important. Along with nominal returns, an investor should look at real returns considering inflation. Equity Investment awareness has increased over the years, which is reflected by direct or indirect investment in equity markets by retail investors. Nevertheless, debt investments remain restricted mainly to savings accounts, fixed deposits, Employee Provident Fund, Public Provident Fund etc. Few investors invest in debt mutual funds, but there is expense ratio and distributor commission for indirect investment in debt products. Some of these traditional debt investments have lock in periods, upper limit to investment etc. Reserve Bank of India (RBI) launched RBI retail direct scheme in November 2021, which allows retail investors to invest directly in Government of India Treasury Bills, Government of India Bonds, State Development Loans (SDL), Sovereign gold bonds. This study explored risk and return based on daily data from 1st April 2018 till 8th May 2023 for the following five indices (i) Nifty 50 Equity Index (indicator towards large -caps) ii) Nifty 100 Equity Index (indicator towards all large caps and mid-caps) (iii) Nifty 500 Equity Index (indicator towards large, mid and small -caps) (iv) Nifty 10 Year Benchmark G-sec index (indicator towards investment in Central government bonds) (v) Nifty 10 Year SDL Index (indicator towards investment in state government bonds).Study examined all these indices for the Sharpe ratio assuming a risk-free rate of 0%. The study found investment in SDL’s favorable from the return to risk point of view. Drawdown risk was lower in debt as an asset class as compared to equity. Debt investment could be considered through RBI retail direct platform for the short to medium term.
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