Building a Diversified Portfolio Using Mutual Funds

Personal finance
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When it comes to investing, diversification is key to managing risk and enhancing long-term returns. But achieving a well-balanced portfolio can seem like a tough task, especially for beginners. That’s where mutual funds come in. These investment vehicles pool money from multiple investors to buy a variety of securities, such as stocks, bonds, and other assets. By doing so, mutual funds offer an easy and cost-effective way to build a diversified portfolio, even with limited capital. In this article, we will explore how mutual funds work and how to leverage them to create a portfolio that aligns with your financial goals and risk tolerance.

What is a diversified portfolio and why is it needed?

A diversified portfolio is an organized collection of investments in different categories of assets. Generally, a person does not depend on a single investment for growth. He/she knows that sustainability lies in investing in multiple assets, such as equity, debt or gold.

Thus, a diversified portfolio helps allocate assets in a particular percentage depending on the risk appetite of the investor. Since every investment goal is different, with a well-diversified portfolio, the fall of an asset it is balanced by other assets with inverse relationship.

Benefits of a diversified portfolio

A diversification process can help you achieve and balance long-term financial goals by segregating investments across different asset classes. Know more about the benefits of a diversified portfolio by reading the following points:

Helps in risk mitigation

Diversification helps in spreading risks among different assets that exhibit different traits. Thus, it reduces over dependence on 1 asset and can reduce the loss if one of your investments is underperforming.

Risk Adjusted returns on investment

A diversified portfolio can balance the fall of one asset class with another having inverse characteristics to bring risk adjusted returns. In addition, it can help reduce the volatility of your investment journey.

A balance of liquidity and flexibility

You can maintain liquidity if you invest in different asset class. . Further, this liquidity or access to cash your investment whenever required is called flexibility.

Custom-made risk-reward profile

You can modify your risk-reward profile as per your requirements. You can combine the asset classes as per your preferences in a diversified portfolio. No need to say, it should be dependent on your investment goals and risk tolerance ability.

How to build a diversified portfolio?

Define your investment goals

For proper risk mitigation, you must clearly know about the objective of your investment. Whether you want to do it for a retirement purpose or travel goal, it should be as clear as a crystal.

Allocate your assets

Start with a conscious asset allocation. Like, you can distribute funds in the portfolio for equity funds- for long-term plans, debt -to prepare for emergencies and contingencies, and gold funds – for strategic diversification. You can seek the help of an investment advisors if you are facing any trouble.

Regular review of the portfolio

As the market is dynamic, it can change anytime. Therefore, you should regularly review your diversified portfolio for customizing/re-balancing asset allocation as per requirements.

Final words

Investment planning is something that requires a vigilant mind and expert advice for the best results. Designing and developing a diversified portfolio is a crucial step if you are planning to invest your capital. It can help you to reduce losses that can occur due to market fluctuations and take required action in case of adverse market conditions. And boost your growth when the market is on the rise.

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No one can predict top and bottom. Markets can continue irrationally ( or perhaps for reason unknown to us).

If you want a time to sell, you already need a tested plan for it. We cant do this adhoc, most of us anyway. I have almost always been wrong when i sold like this.

Else have an allocation plan, balance say yearly, and just ride it out ignoring ups and downs. Severe crashes ( we are not even close to that ) can be good chance to buy cheap and hold for 5-10 years.

That guy is a very well respected fund manager. He said to be cautions of mid and small couple of years back too. And midcaps kept rising too. They are still very high. Anyone who bought and held for say 5+ years is doing very well even after current pullback.

No one knows for sure what market will do next. If you sell now, it could fall it could rise. We cant blame others.

People hitting back at him are looking for someone to blame rather than take responsibility.

He also doesn’t know what top is what bottom is. But he knows what works for him and his investors, his funds have beaten benchmarks over long run. I liked his and Prashant Jain’s views when i used to invest only some years back. Both have had ups and downs, they dont always agree with markets and markets dont always agree with them.

He is right about mid and small, people are behaving irrationaly expecting too much and sending liquidity to illiquid stuff

Good luck.

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ok

No one is blaming anyone. The point being, why make a statement to run from small and midcap now - does he not know that there will be an impact when he makes such statment now. The same statement he could have made when the market was at the top.

When the market was at a high it would be great for him to make the same statement and people could have taken a call. Not now after the fall.

Anyways deleted the post as it is pointless. It is their bread and butter and they will do what they feel.

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Because as per his experience, these are dangerous times for such stocks. He is well qualified to give his opinion.

To my eyes, there has been no or negligible impact from his statements. Markets are doing what they do and they have been falling slowly for quite some time now. They also went up crazy with people chasing small / psu stocks. Whenever there is too much excitement around ipos, it probably means people are going to feel pain in next few years.

Again - people blaming him for fall are not taking responsibility for their own actions.

Again - He doesn’t know what will be top. He said few years back that mid and small are expensive too. Back then his statement was less urgent perhaps and that’s probably because of what has happened since.

After all is done, markets can very well go back to bull phase for next 5 years. No one
knows.

We should value people who give contra opinions, rather than giving only rosy outlooks.
He is going against icici’s short term interests when he tells people to sell.

  1. He doesn’t know where top is. No one does.

  2. Just because it has fallen a bit doesnt mean it wont fall more.
    In my own experience, it was always very hard to accept falls like this after getting used to a bull phase. If fall continues, afterwards even these prices will look good exit points.
    Again, we need to have a plan to be able to sell. Else we will only react emotionally at bad times.
    I dont know what will happen to small companies. But i have 0 interest in investing in them even after current fall.

  3. He can make statement whenever he feels like. He has definitely earned that right. You can look at his past statements and form your view. Look at his funds, ICICI value discovery is a top fund and has done well over many many years.

Anyway, yeah good luck.

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Fund managers from icici and ppfas have been vocal about over valuations since 2023 mid so far I follow back. This was nothing new from him now he been saying same thing . The viral one was mostly due to that YouTube channel deleting his statements from the video.

People that I really take word of caution (and probably do the opposite of their view) are from Capital Minds, Kotak , Motilal and momentum investment gurus. I do not believe their statements but watch their discussions anyways.

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hehe.

With momentum, this is valid though. I do it too.
Market goes up you go long. It goes down you short/close position.
Momentum without proper exits is probably dangerous.

But that is not very useful as input for reading, dunno about momentum investment gurus.

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I would assume they do understand.
And it is a deliberate choice, not something that happens by accident.

Maybe he even did.
Did it / Would it get this much coverage, though?

:100: this!
If people have bet their lives on a handful of people behaving ideally,
then they are in for a massive shock in volatile times like these.

Semi-Random thought: In “Mutual-Fund”, what does the “Mutual” stand for? :thinking:

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Please share the some risk free mutual funds,Thank You Sir …

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I would go so far as to say that there are no risk-free mutual funds.
There maybe some mutual funds that avoid specific types of risks.

@3nadh What are the specific risks you have have in mind, that you would like to avoid?

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