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How to Diversify Mutual Fund Portfolio in India

December 30, 2021 11:37 PM

You have mostly heard this a lot, but saying it again - you can never put all of your eggs in one basket. That is exactly what portfolio diversification does for you. When you invest, it is you putting your hard-earned money into different vehicles. You spread your risks, making them minimal. You know how risky it is to keep all of your money in one fund, and if the fund fails, you lose everything you have. But, when it is spread out in different funds? Not all of them can fail at the same time, can they? That is portfolio diversification.

What is Portfolio Diversification? 

Diversification is the strategy of spreading your investments across more asset classes and not just one so that your exposure is high. This strategy is intended to assist your portfolio's volatility over time. 

Learning how to balance your comfort level with risk against your time horizon is one of the keys to effective investment. If you invest your retirement nest money too conservatively at an early age, the growth rate of your investments may not keep up with inflation. Conversely, if you invest too aggressively as you become older, you may leave your funds vulnerable to market volatility, eroding the value of your assets at an age when you have fewer possibilities to recoup your losses. 

Diversifying your assets is one strategy to manage risk and reward in your investing portfolio. This technique has many sophisticated variations, but at its core is the fundamental concept of diversifying your portfolio across multiple asset types. Diversification can assist reduce the number and severity of stomach-churning ups and downs in your portfolio. 

Remember that diversification does not guarantee a profit or protect against loss. 

Why Do You Need to Choose Mutual Funds? 

Mutual funds, in general, give larger returns than other investing tools and assist investors in obtaining attractive returns over a specific time period. The most appealing aspect of mutual funds is that you can buy one for as little as Rs. 500 every month. 

The investment process is straightforward and open, and investors can benefit from liquidity and tax breaks. Market risk is also lowered due to the diversified nature of mutual fund investment, as these funds invest in a wide range of securities. 

How can you Diversify your Mutual Fund Portfolio? 

Mutual funds are the most convenient approach to accomplish diversification without needing in-depth knowledge of each asset class. You can spread your risks by investing in mutual funds that invest in many asset types such as equities, debt, and gold. 

An abrupt change in any macroeconomic scenario will not have a significant impact on the value of your portfolio. So, which mutual funds should you invest in to diversify your portfolio? 

Equity mutual funds: These funds invest in the stock market. There are numerous solutions available that may meet your financial objectives and risk tolerance. You can choose one or more large-cap, mid-cap, small-cap, and multi-cap funds. By examining the equity fund's portfolio, you can guarantee that the scheme you select invests across industries and asset classes. 

Debt Mutual Funds: Debt mutual funds invest in a variety of debt assets such as corporate bonds, money market instruments, treasury bills, and so on. While debt mutual funds provide greater liquidity than typical FDs. They can also provide higher returns over time. Debt mutual funds are also more tax-efficient, particularly when the holding duration exceeds three years, due to the benefit of indexation. 

Balanced Funds: Balanced mutual funds are hybrid mutual funds that invest in both, equities and debt. Balanced funds are suitable choices for first-time investors who do not want to take on equity risks. These funds give the buffer that comes with fixed income instruments and are the most straightforward method to diversify. 

Should you Invest in Mutual Funds in AMCs? 

Having a financial expert manage your money is usually a good idea, especially if you're unfamiliar with how stock markets function. This is when a mutual fund company or an Asset Management Company (AMC) comes in. You can invest directly in mutual funds through an AMC or asset management company. The company is primarily in charge of steering the mutual fund and making decisions that benefit investors. It invests the money in accordance with the scheme's investment objectives, under the supervision of a fund manager. 

Here is a list of AMCs that you start investing through: 

  1. UTI Asset Management Company Ltd 

Unit Trust of India owns UTI Mutual Fund (UTI). It was first registered with the SEBI in 2003. SBI, LIC, Bank of Baroda, and PNB are among the sponsors. UTI is one of India's oldest and largest mutual funds. 

  1. L&T Mutual Fund 

L&T Mutual Fund is an Indian mutual fund business. It meets investors' investing demands through numerous mutual fund programs. The firm claims to have excellent investment management methods in place as well as a skilled fund management team. 

  1. Franklin Templeton Mutual Fund 

Templeton Asset Management India Pvt. Limited was established in 1996 as the Franklin Templeton India office. Franklin Templeton Asset Management (India) Pt Limited is the new name for this mutual fund. 

  1. DSP Blackrock Mutual Fund 

DSP BlackRock is a partnership formed by DSP Group and BlackRock, the world's largest investment management organization. The DSP BlackRock Mutual Fund is trusted by DSP BlackRock trustee Company Private Ltd. 

  1. Axis Mutual Fund 

In 2009, Axis Mutual Fund launched its inaugural scheme. The MD and CEO are Mr. Chandresh Kumar Nigam. Axis Bank Limited owns 74.99% of Axis Mutual Fund. Schroder Singapore Holdings Private Limited owns the remaining 25%. 

Every company has varied categories of funds that allow you to spread your funds along with the help of experts. 

Conclusion 

Portfolio diversification is essential if you want a successful investing destination. With diversification, you can look forward to maximizing your profits and minimizing your losses.

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