What is a Diversified Mutual Fund? What are the Benefits of Investing in Them?

What is a Diversified Mutual Fund? What are the Benefits of Investing in Them?
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Top Diversified Mutual Funds: An Overview

Lately, investments in Mutual Funds have been rising at a rapid pace. The term “Diversification” is also tossed around among the new investors. Diversification plays a vital role when it comes to one’s investments. And in this article, you will learn about the diversification in Mutual Funds, its benefits, and the best diversified mutual funds that one should consider before investing.

What is diversification in mutual funds?

The term diversity simply means variety and diversification is the process of making a variety of products or investing in multiple different assets. Mutual Funds also offer this feature of diversification. To answer the question: “What is a diversified Mutual Fund?” - It is a Mutual Fund in which the fund house pools the money of like-minded investors and invests it in various diversified classes of financial instruments. This feature allows the investor to avoid keeping all its eggs in one basket thereby investing in multiple assets to reduce risk. The pooled amount can be invested in various kinds of Mutual Funds, mainly Equity Mutual Funds (investment in equities of large-cap, mid-cap, and small cap), Debt Mutual Funds (investment in government securities and other low-risk securities), and Hybrid Mutual Funds (investment in equities and debt instruments). All of the above forms of investments offer diversification and are also called diversified mutual funds.

What are the benefits of a diversified mutual fund?

The main benefit of having diversified investments is reduced risks. By investing in multiple instruments, the risk is also diversified, if one instrument fails to perform well, the other instruments are there to balance it and thereby reducing the loss or making a profit in the end.

Although, there are other benefits of this feature too. Which are as follows:

  • Investment in a variety of instruments (equities, bonds, and many more)
  • Investment in different industries.
  • Avoid investing in similar assets with a high level of correlation.
  • Investment in various regions.
  • Achieve long-term financial goals.
  • Gain knowledge of different asset classes.
  • Less time is required to monitor/track your investments.

The above benefits clearly show how the feature of mutual fund diversification benefits the investors and makes Mutual Funds an important form of investment.

Key Takeaways

  • Diversification is one of the most beneficial features of Mutual Funds.
  • There are various benefits of a diversified portfolio and investing in Mutual Funds gives you all those additional benefits.
  • One must consider investing in mutual funds for diversification if they are looking for investing in securities for fund diversification for their long-term financial goals.
  • Investing in Mutual Funds reduces your efforts and time for research to gain higher returns with lesser risks.

Top Diversified Mutual Funds

All Mutual Funds provide diversification of investments in one form or the other, be it in terms of caps or terms of the type of security. There are several Fund Houses providing several options for investors. But all investors are different and should choose the Mutual Fund wisely to get good long-term returns with decreased risks. The following are a few of the most popular Mutual Funds that people can look to invest in, based on their investment objectives, time horizon, and risk appetite:

This scheme is launched by Quant Mutual Fund. It is a multi-cap Mutual Fund. This Mutual Fund has a fund size of ₹2644.71 Cr and an Expense Ratio of 0.58% This fund has 98.54% investment in domestic equities, out of which, 46.84% is in large-cap stocks and 13.87% is in mid-cap stocks and 22.31% is in small-cap stocks. With a NAV of ₹467.0295 and a 5-star Crisil Ranking, it is suitable for individuals who are looking to invest money for a minimum of 3 - 4 years with higher returns and are also willing to accept a moderate loss as this mutual fund is highly risky.

This scheme is launched by ICICI Mutual Fund. It is an Aggressive Hybrid Fund. This Mutual Fund has a fund size of ₹19613.85 Cr and an Expense Ratio of 1.24% This fund has 69.76% investment in domestic equities, out of which, 55.55% is in large-cap stocks and 7.38% is in mid-cap stocks and 1.72% is in small-cap stocks. This fund also invests 20.03% in Debt, out of which 14.12% is invested in Government securities and 5.21% is invested in low-risk securities. With a NAV of ₹255.06 and a 5-star Crisil Ranking, it is suitable for investors who are looking to invest in a Hybrid Mutual Fund and diversify their investment in both equities and debt securities.

This scheme is launched by HDFC Mutual Fund. It is a Balanced Advantage Fund. This Mutual Fund has a fund size of ₹46130.44 Cr and an Expense Ratio of 0.97% This fund has 68.38% investment in domestic equities, out of which, 48.8% is in large-cap stocks and 6.02% is in mid-cap stocks and 6.2% is in small-cap stocks. This fund also invests 21.75% in Debt, out of which 17.8% is invested in Government securities and 4.57% is invested in low-risk securities. With a NAV of ₹330.572 and a 4-star Crisil Ranking, it is suitable for investors who are looking to invest in a Hybrid Mutual Fund and diversify their investment in both equities and debt securities.

This scheme is launched by Canara Robeco Mutual Fund. This Mutual Fund has a fund size of ₹1060.66 Cr and an Expense Ratio of 0.33% This fund is a Low Duration Debt Mutual Fund and 95.25% of the total amount is invested in Debt, out of which 20.95% is invested in government securities, and 74.3% is invested in low-risk securities. Being a debt fund, it is less risky and is suitable for investors who want to invest for a short duration of 1-3 years. It has a NAV of ₹35.4068, and a 5-star Crisil Rank holding in the previous quarter and is suitable for people looking for alternatives to a bank deposit.

* Please Note: The above-mentioned Mutual Funds might not be the perfect fit for all as everyone’s investment purpose, risk appetite, and time horizon of investment are different. The data is updated as of 7th September 2022.


 Conclusion

Every investor is different and has a different purpose for investment. But, all of them want to earn high returns. Each one poses a different risk appetite and is willing to invest accordingly. Although, it is important to keep your risk in mind and try to mitigate it whenever possible. One can do that by investing in a variety of securities. And that’s exactly what diversification mutual funds offer. They offer to invest the money in a variety of securities thereby diversifying the risk and increasing the long-term returns of the investor.

An investor should never forget to consider its investment purpose, risk appetite, and time horizon before selecting the Mutual Fund to invest in, along with other factors such as expense ratio, AUM, and others about the Mutual Fund, to make the right decision.

Check our Related Articles:

  • How diverse should a portfolio be?

  • Can someone over-diversify during investing?

  • What is the ideal diversified portfolio mix?

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