Any equity mutual fund that invests in a variety of businesses and sectors is known as a diversified equity fund. Basic equity funds select roughly 40-60 equities from all listed firms that suit their investing strategy. However, a diversified equity fund typically includes equities from at least eight to ten different industries.
There are several types of equity diversified funds, including large-cap, mid-cap, large-and-mid-cap, multi-cap, small-cap, and tax-saving equity funds (equity-linked savings schemes or ELSS). Diversified equity funds are believed to be less risky and thus more suitable for the average individual investor because they are distributed across stocks and sectors.
Read on to know about the benefits of Diversified Equity Funds and how to choose a Diversified Equity Fund to invest in.
Diversified Equity Funds invest in a wide range of stocks with varying market capitalizations. Due to their high-end market size, large-cap stocks tend to remain stable in poor markets and show moderate appreciation in bull markets. Stocks in the mid-and small-cap groups react to market fluctuations. They appreciate more in bull markets but decline at the same rate in bear markets.
Diversified Equity Funds smooth out the performance discrepancies between various market caps. Even though the large-cap stocks depreciate moderately in a bear market, the mid and small-cap stocks tend to be volatile, keeping a constant equilibrium. Investors with varied risk appetites can put their money in these funds because of their stability.
Financial planners and consultants frequently stress the need of diversifying your investments. The return of the portfolio, not the individual funds, is said to be determined by diversification across asset classes. Investing in Diversified Equity Funds lowers the requirement to diversify your portfolio because you may select a fund that is already diversified based on your investing needs and risk tolerance.
If you want your investments to be more stable, you might put a bigger amount of your money in Diversified Equity Funds and the rest in Small and Mid Cap Funds. Mid and Small Cap Funds, on the other hand, could be perfect investments for you if you are an ambitious investor willing to assume a high risk in exchange for long-term growth.
The fund includes a component that will appeal to all types of investors, including risk-takers, safe bettors, and flexible investors. It also eliminates the necessity for diversification. As a result, if you prefer to handle your own portfolio as an investor, you can lessen your need to diversify to some extent. It provides your portfolio with consistency as well as a moderate to high return range.
There are many plans in the same category, and they all sound appealing. Each one offers a high rate of return or promises to do so in the future. But before you pick a diversified mutual fund to invest in, consider past performance, returns earned versus the category, and the benchmark index. Let’s look at the details of these factors to make the decision process a little easier for you.
A fund that has been in the market for a long time will have a track record of positive returns over time. Compare this return to the returns of the Diversified Equity Mutual Fund Category and the Fund’s Benchmark. The category returns are calculated by averaging the returns of all the schemes in that category. For example, if a Diversified Equity Fund returns 22% annualized over 10 years while the category returns are 18% annualized, the scheme has surpassed the category returns.
Now you must examine the performance of the fund against which it was benchmarked, such as the S& P BSE 100, S& P BSE 200, CNX 200, and CNX 500, etc. These four benchmarks are linked to the majority of India’s Diversified Equity Mutual Funds. If you find that the fund you selected outperformed both the Category Returns and the Benchmark, you should consider investing in it.
A Diversified Equity Mutual Fund’s portfolio might include large, mid, and small-cap stocks. As a result, fund managers can select companies from a variety of industries and market capitalizations. It may be tough for you to keep track of the sectors or stocks inside your selected fund as an investor. As a result, you should look at two factors to see if the returns are consistent: the fund’s historical returns and the volatility of the chosen fund throughout market cycles.
Investing in Diversified Equity Funds can help diversify your investment portfolio and enjoy market stability. However, you should seek the advice of a financial expert when selecting the proper fund for your risk tolerance and time horizon. For more information about investments, particularly in Mutual Funds, visit the Navi Mutual Fund.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully before investing.
Ans: Diversified funds are ideal for investors who don’t want to take on too much risk by investing in tiny firms but still want the added benefit of a higher return from emerging stocks. If a person’s risk profile is low to moderate, they should invest in diversified equity funds.
Ans: Diversification gives a portfolio an edge, allowing it to maximise returns while minimising risks. While Large Cap funds are thought to be a relatively safe investment, Mid and Small Cap funds are thought to be more risky and volatile.
Ans: A 401(k) is often made up of several mutual funds that are intended to last for years; however, if you withdraw from your 401(k) before retirement age, you will face fines and a higher tax rate. This covers not only the amount of money you contribute but also the mutual funds or other investment alternatives you choose, such as bonds.
Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
10 Best Nifty 50 Index Funds in India to Invest in February 2023
What is the Nifty 50 Index Fund? Nifty 50 index funds are a type of passively-managed equi... Read More »15 Best Mid Cap Mutual Funds in India to Invest in February 2023
A mid cap mutual fund is a type of mutual fund that invests in the stocks of mid-cap companies. As ... Read More »5 Best Technology Mutual Funds in India (February 2023)
Technology mutual funds are sectoral mutual fund schemes that primarily invest in the stocks and de... Read More »What are Mutual Fund Returns and How to Calculate it?
Mutual funds are gradually becoming a popular investment option in India because of their many bene... Read More »What is Midcap Index – Features, Types and Why Should You Invest in 2023?
What is Midcap Index? A midcap index is a stock market index that has companies ranked between 1... Read More »Best Short Term Debt Funds to Invest in 2023
Short-term debt mutual funds are a type of mutual fund that invest in debt securities with maturiti... Read More »15 Best Pharma Funds to Invest in India 2023
Pharma funds are a type of sectoral funds that invest in pharmaceutical companies. Sectoral funds a... Read More »20 Best Liquid Funds to Invest in India (February 2023)
Liquid funds are debt funds that invest in short-term assets with a maturity period of just 91 days... Read More »15 Best Multi Cap Funds to Invest in India (February 2023)
Multi-cap mutual funds are the kind of funds which invest their corpus in stocks of large-cap, mid-... Read More »Index Fund – Types, Benefits, How does It Work and How to Invest in 2023
What is Index Fund? An index fund is a passively-managed mutual fund with a portfolio built to t... Read More »15 Best Small Cap Mutual Funds to Invest in India (February 2023)
Small cap mutual funds are open-ended equity funds that invest primarily in stocks of small cap com... Read More »Best Large and Mid Cap Funds to Invest in India 2023 – Taxation and Returns Calculator
Large and mid-cap funds are open-ended mutual funds that invest in stocks of large-cap and mid-cap ... Read More »Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Best Arbitrage Mutual Funds to Invest in India: Returns and Taxation
Arbitrage funds are hybrid mutual fund schemes that aim to make low-risk profits by buying and sell... Read More »Best SIP Mutual Funds To Invest In India (2023) – Its Types And Taxation
A Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »10 Best Corporate Bond Funds in India 2023 – With Returns
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies ... Read More »10 Best Banks for Savings Account in India (2023)
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10