Can gold repeat its 2025 rally? DSP MF on investing myths on risk and returns

After one of its strongest runs in decades—rising nearly 65% in 2025 and outperforming most commodities and asset classes—gold has once again taken centre stage in investor conversations. The big question now is whether this momentum can carry into 2026. A new report by DSP Mutual Fund steps back from the excitement and looks more closely at some of the most common assumptions investors hold about gold, equities and long-term wealth creation.

For years, gold has often been dismissed as a “pet rock” that cannot match the compounding power of equities. DSP’s analysis, however, paints a more balanced picture. Since the start of this century, gold has actually outperformed most major stock markets, including those in India and the United States. Only about one in four stocks in the NSE 500 has beaten gold over this period, challenging the widespread belief that investors should avoid allocating meaningfully to the yellow metal.

At the same time, the report is careful not to swing to the other extreme. Gold, DSP argues, is not a substitute for equities. Five-year rolling return data shows that stocks have outperformed gold roughly half the time in India and the US, and even more often in markets such as Europe and Hong Kong. There have been long stretches when diversified equity portfolios delivered better outcomes than gold alone, reinforcing the idea that gold’s real value lies in diversification, not domination.

The study also revisits another long-running debate: does diversification dilute returns? Often mocked as “di-worse-ification”, spreading money across asset classes is sometimes seen as a drag on performance. DSP’s back-tests suggest otherwise. A balanced portfolio, combining domestic equity, debt, international equity and gold, has generated equity-like returns with significantly lower volatility. For investors, that smoother ride can be just as important as headline returns, especially in volatile market phases.

DSP also questions the assumption that fast economic growth automatically leads to strong stock market returns. Looking at long-term, inflation-adjusted data from high-growth economies such as Malaysia, Indonesia, the Philippines and China, the report finds that equity returns have often lagged GDP growth. Markets, it notes, respond less to economic size and more to earnings quality, capital allocation and governance standards—factors that can diverge sharply from headline growth numbers.

Even bold projections about India becoming a $30-trillion economy by 2050 come under scrutiny. Such forecasts typically rely on nearly 9% real GDP growth over 25 years—an ambitious target rarely sustained in history. DSP suggests that a more realistic outcome, even under optimistic conditions, could be closer to $20 trillion.

The report also challenges the idea that strong investment flows guarantee rising markets. Data on large-, mid- and small-cap funds shows that money usually follows performance rather than drives it. Inflows tend to surge after rallies and fade when returns weaken, reminding investors that flows are more a reaction to market sentiment than a predictor of future gains.

Finally, DSP addresses two anxieties common among long-term investors: risk and timing. Its analysis shows that low-volatility strategies have delivered better long-term compounding than high-risk approaches, while rolling data on systematic investment plans indicates that discipline matters far more than picking the perfect entry point. For investors, the message is clear—successful investing is less about bold forecasts and more about staying balanced, patient and grounded in fundamentals.