Portfolio diversification, as per experts is the most important strategy, that when followed properly, not only ensures your participation during market rallies but also helps in downside protection. The right way to diversify your portfolio is to diversify across different asset classes.
Here what investors need to understand is, diversification in a portfolio means investing in different assets and not holding on to too many schemes.
Let us see how one must go diversifying their investments meaningfully.
Invest Across Different Classes!!
There are investors who like taking risks in their investments and thus focus only on equity investments, while there are investors conservative in nature and focus only on Debt investments. However, in this type of investing, what is left is portfolio diversification! In a diversified portfolio of investors, both debt and Equity must be participants.
Different classes do not rise and fall at the same time, and that is why experts advise diversifying their portfolios. For example, in FY2020, large-cap equity funds fell in value by 23.92 percent, while international schemes declined just 6.96 percent. However, in the same year, gold appreciated 37.34 percent. But the tide turned in the subsequent year. While large-cap equity schemes and international funds gained 72.84 percent and 54.59 percent, respectively; gold managed to deliver only 0.2 percent return.
Invest In Different Asset Class!!
As per the research and data analysis, in the past year, small-cap funds gave 93 percent returns, while mid-cap funds delivered 73 percent returns. Large-cap schemes managed a 56 percent return. This data shows that small-cap funds excelled last year but does that mean, one must allocate everything in the small-cap fund?
Well, obviously no! The small-cap funds offer good returns in the long-term period but allocating all your assets in that won’t help you diversify the risk. Diversify across large, mid, and small-cap funds and look at various strategies.
Invest Across different Geographies!!
In the first wave of the COVID-19 pandemic, we saw that the Indian economy was recovering fast, while Europe and the US were battling with the COVID-19 surge. Currently, during the second wave of the COVID-19 pandemic, we can see that the Indian economy faces lockdowns and the US is doing better.
Thus, this diversification in US-based international mutual funds would help you bring the benefits of foreign market trends. Diversifying overseas helps us to invest in businesses that are not available in India. Some developed markets share a low correlation with Indian stocks.
Last but not the least, not only diversifying your portfolio helps you get the most out of your investment, but you have to keep a regular check on your investment. Reviewing and subsequently rebalancing your assets is a must. They help you achieve your financial goals.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).