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Market Intelligence › Basic Terminologies
Thinking of allocation in terms of risk, not capital
Published by The Retail Trader · JUL 31, 2026 · Risk Management
Most people think of allocation in terms of money — this much in equity, this much in debt. A more useful way is to split the risk, not the capital.
If half the portfolio is in equity and half in debt, the capital has been split equally. But almost all of the portfolio's movement will come from equity.
Seen in terms of risk, that portfolio is not balanced — it is an equity portfolio with a little cushion alongside.
Even a simple version does a lot of work:
• Work out each holding's contribution — its weight multiplied by its volatility.
• See what percent of the total movement is coming from which holding.
• If one holding is taking more than its budget, reduce its weight.
• Doing this review once or twice a year is enough.
When they do this exercise for the first time, almost everyone sees the same thing — the real risk is far higher than the risk they thought the portfolio carried. Seeing that once is the whole benefit of the exercise.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or the official source.