Crafting a Diversified MF Portfolio

Your special report in the last edition emphasised the power of diversity. Relating to the same, is there any downside in crafting a diversified mutual fund portfolio? - Naresh Kalyan

Editor Responds : Thank you for writing to us. To answer your question briefly, diversification is the practice of investing in a variety of funds to reduce risk. By investing in different categories of mutual funds, investors can reduce their exposure to any one class. This can help to protect their investments from losses if one asset class performs poorly.

However, the potential downside for this are; it can be more expensive, can be more complex to manage and it may not reduce risk as much as you think. To overcome the issue, you can consider your risk tolerance and investment goals, invest in a variety of asset classes and rebalance your portfolio regularly. Also, don't try to time the market. Trying to time the market can be risky and can lead to losses. Instead, focus on investing for the long term.