What is a Diversified Mutual Fund? What are the Benefits of Investing in Them?
Top Diversified Mutual Funds: An Overview
In recent times, investments in Mutual Funds have gained significant traction, often accompanied by discussions about the importance of diversification. This article delves into the concept of diversification within Mutual Funds, highlighting its advantages, and providing insights into top-performing diversified mutual funds for potential investors.
What is Diversification in Mutual Funds?
- Diversification is the practice of spreading investments across various assets or products, reducing the risk associated with a single investment.
- In Mutual Funds, diversification entails pooling investments from like-minded investors and allocating them across different classes of financial instruments.
- These instruments include Equity Mutual Funds (large-cap, mid-cap, and small-cap), Debt Mutual Funds (government securities and low-risk securities), and Hybrid Mutual Funds (mix of equities and debt instruments).
- Diversification minimizes the risk of over-concentration in any one asset, providing a more balanced and potentially profitable investment strategy.
Benefits of Diversified Mutual Funds
Diversification in mutual funds offers a range of benefits:
Risk Mitigation: By spreading investments, risks associated with individual assets are reduced. If one asset underperforms, others can compensate, minimizing losses.
Varied Instrumental Exposure: Diversified mutual funds provide exposure to a mix of instruments, including equities, bonds, and more, enhancing the potential for balanced returns.
Industry and Regional Diversification: These funds invest across different industries and regions, reducing dependence on a single sector or geography.
Alignment with Long-Term Goals: Diversified investments can align with long-term financial goals, providing a stable foundation for wealth accumulation.
Knowledge Expansion: Investors gain exposure to different asset classes, broadening their understanding of various investment opportunities.
Reduced Monitoring Effort: Diversified portfolios require less time and effort to monitor compared to concentrated portfolios.
Top Diversified Mutual Funds
Considering different investment objectives, time horizons, and risk appetites, here are some top-performing diversified mutual funds:
Quant Active Fund - Direct Plan-Growth
Type: Multi-cap Mutual Fund
Fund Size: ₹2644.71 Cr
Expense Ratio: 0.58%
Investment Composition: Large-cap (46.84%), Mid-cap (13.87%), Small-cap (22.31%)
Risk Level: High
Suitable for: Long-term investors seeking higher returns with moderate risk tolerance.
ICICI Prudential Equity & Debt Fund - Direct Plan-Growth
Type: Aggressive Hybrid Fund
Fund Size: ₹19613.85 Cr
Expense Ratio: 1.24%
Investment Composition: Large-cap (55.55%), Mid-cap (7.38%), Small-cap (1.72%); Debt (20.03%)
Risk Level: Moderate
Suitable for: Investors looking to diversify across equities and debt securities.
HDFC Balanced Advantage Fund - Direct Plan-Growth
Type: Balanced Advantage Fund
Fund Size: ₹46130.44 Cr
Expense Ratio: 0.97%
Investment Composition: Large-cap (48.8%), Mid-cap (6.02%), Small-cap (6.2%); Debt (21.75%)
Risk Level: Moderate
Suitable for: Investors seeking a blend of equities and debt instruments.
Canara Robeco Savings Fund - Direct Plan-Growth
Type: Low Duration Debt Mutual Fund
Fund Size: ₹1060.66 Cr
Expense Ratio: 0.33%
Investment Composition: Debt (95.25%); Government securities (20.95%), Low-risk securities (74.3%)
Risk Level: Low
Suitable for: Investors seeking short-term, low-risk alternatives.
Please note: It's essential to align your investment choice with your specific financial objectives, risk tolerance, and time horizon.
Conclusion
Diversification through mutual funds provides a prudent approach to investing, offering a balanced exposure to various asset classes. By mitigating risks and potentially enhancing returns, diversified mutual funds are a valuable tool for achieving long-term financial goals. Remember to consider your risk appetite and investment horizon when selecting the right mutual fund for your portfolio.
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How diverse should a portfolio be?
There is no right answer to this question. All investors are different and have different investment purposes, risk appetites, and time horizons for investment. Hence, only the investor can decide how diverse his/her portfolio should be. Although, you should consider the investment timeframe, the amount that you are investing, and the risk you are willing to take when deciding the level of diversification you want in your investment portfolio.
Can someone over-diversify during investing?
Yes, at times people can over-diversify while investing. To reduce the risk, they keep diversifying the portfolio but forget that it also has an impact on their returns. So one should avoid over-diversification as it will lead to additional costs of holding such diverse securities and also reduce the returns.
What is the ideal diversified portfolio mix?
There is no right answer to this question. Every investor is different and will have a different mix which is ideal for them. One might be willing to take more risks and invest more in equities and opt for market risk, whereas the other would not be comfortable. That’s exactly why so many types of Mutual Funds are offered, thereby providing the right fit for every kind.
How do diversified mutual funds work?
As the name implies, a diversified mutual fund is a form of investment fund that makes investments in various asset classes regardless of market capitalization and industry. The main goal of a diversified fund is to maximize returns while reducing systemic and unorganized risk across the board.
How do I pick a diversified mutual fund?
Real diversification in a mutual fund portfolio is achieved by purchasing shares of many fund categories with holdings in different types of equities and securities. You may have money in more than one mutual fund, for instance.
How can you determine whether a mutual fund is diverse?
For the investment firm to qualify as diversified, it must adhere to the 75/5/10 criterion. That is to say; the fund can't just sit on its cash reserves; it must make investments.
Which is preferable, having a diversified fund or not?
Investing in a diversified fund is like fishing with a very large net, collecting bonds, cash, and stocks from various companies. Federal regulation prohibits funds from investing more than 5% of their assets in a single company's stock. Investments in non-diversified funds are made primarily in one market.
Why do the majority of investors maintain diverse portfolios?
One of the biggest advantages of diversification for you as an investor is that it may increase your prospective profits and stabilize your outcomes. You may lower the total risk of your portfolio and ensure that no one investment can harm you too much by having a variety of assets that perform in diverse ways.
Which are the best diversified mutual funds?
Here is a list of the best diversified mutual funds:
- PGIM India Diversified Equity Fund
- Mahindra Badhat Yojana
- Parag Parikh Long-Term Equity Fund
- Principal Multi Cap Growth Fund
- Baroda Pioneer Multi Cap Fund
- Nippon India Multi Cap Fund
- Franklin India Equity Fund
How does a Diversified Equity Fund operate?
A diversified equity fund invests in businesses from many sectors and industries. In this sense, it may benefit from economic development and not depend on a single industry or area.
What exactly are diversified large-cap funds?
Large Cap Diversified Mutual Funds invest in businesses with a market cap of at least Rs. 20,000 crore. The investment is often made in shares of well-known blue-chip corporations.