To make investments safer, especially in the case of investing in equities, it’s said that never put all your eggs in the same basket. Which means, like all the eggs in a basket get spoiled, if a single egg gets rotten, you may lose all your money, if the entire money is invested in the stocks of a single company.
So, to reduce the risks of equity investment, you should invest in more than one good company. Higher the diversification, lower will be the risk.
For better diversification, instead of investing in stocks of different companies operating within a single sector, you should invest in the leading companies operating in different sectors.
You may also diversify further distributing your investment money among large, medium and small-cap companies to get the flavour of both stability and growth.
Selecting good companies across the sectors may not only be difficult, but it’s also very costly to make investments in individual stocks. To get a readymade diversified portfolio managed by professional fund managers and that too by investing small amounts, instead of investing in individual stocks, you may invest in the units of equity-oriented mutual fund (MF) schemes.
By investing in flexicap and multi-cap categories of MF schemes, you may cover the entire equity segment, from which professional fund managers would cherry-pick the stocks for you.
To make your portfolio further safe, apart from investing in equities, you may also invest in other asset classes, like bonds and other debt instruments, commodities, especially gold etc.
While debt provides the investment portfolio greater stability during market turmoils, gold acts as a buffer during economic downturn and global turmoil.
There are some multi-asset funds also available that allow you to enjoy professionally managed diversification through smaller investments.
As the economic condition of a country would determine the direction of the movement of indices of the stock exchanges operating within the country, to reduce the country-specific risks, you should go for geographical diversification by investing in equities of other countries.
Such diversification may be done by investing in direct stocks of foreign companies through international brokers, international funds offered by different Asset Management Companies (AMCs) or by investing in international ETFs (exchange traded funds).
