The ground rules of investing are like the traffic rules in Delhi — more ignored than followed. Common errors include buying last year’s winners, no portfolio diversification, comparing equity returns to debt, and ignoring total portfolio returns. When the headlines begin to compare equity returns that look unflattering to a five-year bank deposit, we know that very few lessons have been learned — that the equivalent of driving on the wrong side of the road has become the norm in investing, not exception.

Think of this article as a car that will leap past the traffic jams of bad investing decisions and keep you cruising safely with little need for either the clutch or the brake.

First, some maths. Let’s say you had ₹5 lakh invested five years ago. You put all of it in equity, in a Sensex Total Return Index (total return index includes dividends). An approximate average annual return of 4.6% over this period, would nudge your ₹5 lakh to about ₹6.26 lakh. A ₹5-lakh fixed deposit (FD) earning 6% annually, would have compounded to ₹6.69 lakh. I am not considering impact of tax here. The headline will scream: The cycle has overtaken the Tesla.

Why were you in 100% equity anyway? Because the stellar returns seen post-Covid made a 15-20% annual return seem like the norm. Not average, but annual. But markets react to geopolitics, the price of oil, or the mood of western oligarchs, and extrapolating three-year returns to........

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