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Diversification is an essential part of investing

Diversification is the most essential part while Investing

In this article its advised about “not to put all the eggs in one basket” when it comes to investments. If the risk is distributed across various asset classes, it will reduce the achievable gains in one particular basket, but it will lower the potential risk of losing all the eggs due to occurrence of any adverse event. Here we explain the benefits of a diversified mutual fund portfolio.

Understanding diversification in better terms

Diversification always work as all asset classes do not behave in the same way. They move in the same direction in response to changing investor sentiment. It has been noticed that, whenever the sentiment for equity strengthens, investors pull out their investments for safer assets such as debt markets. When equities are passing through a bear phase, investors risk appetite takes a hit and thus the demand for safer asset and commodities rises, such as demand for gold.

Investor must diversify a portfolio through mutual funds

Now let us see, how mutual funds and their various categories are an ideal way to spread a portfolio through multi-asset allocation of funds. In equity, the investors have large, small & mid cap fund schemes. On the debt side, investor has short and long term debt funds. Investors can choose the various mutual fund categories as per their risk return profile and investment horizon.

Summing up

Investments are exposed to ups and downs. Mutual fund help the investors to reap optimal returns across market phases due to exposure to diversification of portfolio.

Dos:

  • Investor must evaluate financial goals and time frame to attain those goals.
  • Investor must consider their risk appetite
  • Expense ratio in a particular scheme must be evaluated before making investment.

Don’ts:

  • Any scheme must not be picked up hastly to reap short term benefits and proper research must be done.
  • Investing without guidance must be avoided if you’re not sure which fund is right for you.

Mutual Fund investments are subject to market risk and the Investors should consider their investment objectives and risks carefully before investing & must read all scheme related document carefully

MF Invest India is registered with AMFI under ARN code: ARN144789

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