Diversified Portfolio

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Definition:

Diversified portfolio is making investment in different assets or securities to minimise the risk of returns.

Description:

Investments are made to generate good returns over the long term. When investments are made in more than one assets or funds, it is called diversifying the portfolio. With a diversified portfolio, an individual would absorb the risk of returns, if there would be any. Imagine if you invest all your money in a single fund which gives poor returns over the long run, you would suffer a loss. To avoid a situation like this, portfolio diversification is important.

For successful and safe returns, the key is to balance the investment under different funds. Making aggressive investments can leave your savings exposed to market volatility. Ultimately, the current value of the funds invested will reduce. Similarly, for higher returns, you cannot remain invested in debt funds and continue to receive safe returns from your portfolio.

Example:

For long term growth Arun wanted to invest his money in India. He worked in Singapore and earned well but planned to return to India after a few years. For a safe and secured future, Arun wanted to have a diversified portfolio. He invested money in ULIPs as well as in Systematic Investment Plan. Both the financial instruments had their returns and benefits but investment in both helped Arun absorb the returns that are based on market fluctuations.

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