To access the old website
Click Here
Financial Planning
Why diversify? Investing the right way
Diversification is the process by which you can spread out your investments to reduce the overall risk potential of your portfolio. In this regard, you can choose to invest in an array of asset classes such as stocks, bonds, Mutual Funds, ETFs, FDs, etc. The best mix should ideally depend on your financial goals, risk profile, and time horizon.
What is diversification?
At its core, diversification means mixing different asset classes like equities, bonds, gold, real estate, international funds etc. in one portfolio. This strategy lowers your risks unique to a single asset class, sector, company or even geography and still allows you to enjoy market exposure for high long-term growth.
However, true diversification happens when you opt for investments that don’t rise and fall in tandem. In this respect, correlation measures how closely two investments move in relation to each other. By mixing low-correlation assets, those that don’t move in sync, you soften big ups and downs and keep your overall portfolio steadier.
Illustration – How diversification helps
Let us assume that you invest ₹6 lakhs equally across three assets:
- ₹2 lakhs in Large-cap Equities
- ₹2 lakhs in a Debt Fund
- ₹2 lakhs in a Gold ETF
In case your share of equity investments slumps by 12%, then your equity slice loses ₹24,000.
Meanwhile, if gold jumps 10%, you gain ₹20,000.
Debt holds steady or gains even a few thousand rupees, your total loss might be under ₹5000 instead of ₹72,000 if you’d gone all-in on stocks.
That’s the cushioning power of true asset diversification.
Why it matters?
Indian markets can be volatile, with asset prices changing almost every day. So, diversification isn’t all about chasing the highest returns, it’s also about smoothing out the ride. By bringing together different assets that respond differently to market swings, you protect your invested capital and keep growing your investment steadily over the long run.
Disclaimer: Disclaimer: This article is intended solely for
informational purposes. The views expressed in this article are personal. Axis
Bank and/or the author shall not be liable for any direct or indirect loss or
liability incurred by the reader arising from reliance on the content herein.
Readers are advised to consult a qualified financial advisor before making any
financial decisions. Axis Bank does not endorse or guarantee the accuracy of
any third-party content or links included in this article.
Mutual Fund investments are subject to market
risk. Please read all scheme-related documents carefully. Axis Bank Ltd. is
acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Any purchase
of Mutual Funds by Axis Bank’s customer(s) is purely voluntary and not linked
to availment of any other facility from the Bank. This content is for
informational purposes only and does not constitute investment advice. Past
performance is not indicative of future returns. Readers are advised to consult
a qualified financial advisor before making any investment decisions. Terms and
Conditions apply.on the contents and information. Please consult your financial advisor before making any financial decision.
Table of Contents
Related Services
Learning Hub
Look through our knowledge section for helpful blogs and articles.
Copyright@ 2025 Axis Bank