1. Buying too many similar mutual funds does not really diversify your investments.
2. Diversification means having a mix of schemes in your portfolio, differentiated by their fund structure (diversified, large cap, small cap, mid cap, sectoral), investment style (growth, value), or risk profile (high, medium or low risk), optimized to your risk-return profile.
3. Most diversified equity funds follow roughly the same pattern of investment with respect to both stock and sectoral allocation, as they have to invest mainly within its benchmark index, hence look up the fund’s investment mandate.
4. A well-diversified portfolio can be a mix of large-cap, mid-cap and multi-cap schemes, with a few sectoral funds if you want a focused exposure to a particular sector or theme, provided you do a lot more research and can take higher risks.
5. Don’t invest in more than 6-8 equity funds, because monitoring them will be a challenge.
6. Diversification could also be achieved by investing one’s funds in a mix of equity, debt, gold, money market and real estate funds.
7. Too many funds may ‘diworsify’ your portfolio and lead to lower overall returns.
8. Remember that in a diversified portfolio, the laggards average out the gains of the outperformers.
9. But in an over-diversified portfolio, the overall out-performance of the winners may be more than pulled down by the laggards.
10. So while diversification is good up to a level, excessive diversification can actually harm one’s portfolio rather than helping it.
2. Diversification means having a mix of schemes in your portfolio, differentiated by their fund structure (diversified, large cap, small cap, mid cap, sectoral), investment style (growth, value), or risk profile (high, medium or low risk), optimized to your risk-return profile.
3. Most diversified equity funds follow roughly the same pattern of investment with respect to both stock and sectoral allocation, as they have to invest mainly within its benchmark index, hence look up the fund’s investment mandate.
4. A well-diversified portfolio can be a mix of large-cap, mid-cap and multi-cap schemes, with a few sectoral funds if you want a focused exposure to a particular sector or theme, provided you do a lot more research and can take higher risks.
5. Don’t invest in more than 6-8 equity funds, because monitoring them will be a challenge.
6. Diversification could also be achieved by investing one’s funds in a mix of equity, debt, gold, money market and real estate funds.
7. Too many funds may ‘diworsify’ your portfolio and lead to lower overall returns.
8. Remember that in a diversified portfolio, the laggards average out the gains of the outperformers.
9. But in an over-diversified portfolio, the overall out-performance of the winners may be more than pulled down by the laggards.
10. So while diversification is good up to a level, excessive diversification can actually harm one’s portfolio rather than helping it.