Achi news desk-
As an investor myself, I understand the importance of diversification in investment portfolios. Diversification is the process of spreading investments across different asset classes, sectors and geographies to reduce risk and maximize returns. It is an essential strategy that helps investors achieve their long-term financial goals while mitigating the risks associated with short-term market fluctuations.
Between April 2023 and January 2024, Indian investors put 17.66 lakh crore rupees in bank deposits, 3.96 lakh crore rupees in mutual funds, and 2.27 lakh crore rupees in small savings, totaling 23.89 lakh crore rupees.
Also read: 5 Key Real Estate Investment Tips for Women
Strategies for a diversified portfolio
Building wealth requires calculated risks, but spreading those risks across a wide variety of assets is critical to a secure financial future. Over the years, I have seen firsthand the power of diversification in helping Indian investors navigate the dynamic and often unpredictable financial landscape.
Asset Allocation: This is the foundation of diversification. It means dividing your investable corpus across different asset classes such as equity (stocks), gold, fixed income (bonds), real estate, and commodities. The ideal allocation depends on your risk tolerance, investment horizon, and financial goals. A young investor with a high risk tolerance might allocate a larger proportion to equities, while someone approaching retirement might prioritize the stability of bonds
Select Sector: Spread your equity investments across various sectors such as technology, healthcare, and finance. This ensures that your portfolio is not overly dependent on the performance of any single industry.
Consider a systematic investment plan (SIP): Driven by the steady growth of systematic investment plans (SIPs), the mutual fund industry’s assets under management (AUM) touched a record high of Rs 50 trillion in December 2023. Notably, SIP-linked AUM was account for Rs 10 trillion of the total AUM at the end of 2023.
A SIP allows you to invest a fixed amount in mutual funds at fixed intervals, making it ideal for those who cannot invest a large amount at once. You can start with as little as Rs 500 and develop a disciplined investment strategy.
Geographic diversification: Investing in stocks from different geographies, such as the United States, Europe, Asia, and Emerging Markets, adds to your diversified investments.
In 2021, Indian investment in the United States experienced a significant surge, with a growth rate of over 200% compared to 2020. Along with this increase, there was a significant increase in the number of investors trading, which grew over 250 %. As a result, total investments doubled, reaching almost $500 million in 2021 based on specific platforms that enable Indians to invest in US stocks.
This provides exposure to different growth patterns and economic cycles, potentially mitigating the risks associated with domestic-only payments.
Commercial real estate: Commercial real estate provides steady income (6-8% annual rent) with the potential for capital appreciation in the value of the property. This combines bond-like income with stock-like appreciation. Consider adding high-quality properties to a well-rounded portfolio.
Risk management: To manage risk, investors should assess their risk tolerance, which is their willingness and ability to withstand potential losses for higher returns.
Risk tolerance is influenced by factors such as financial position, goals and time horizons. Knowing your risk tolerance helps investors create a portfolio that matches their comfort level and avoids excessive risk.
Benefits of a Rebalancing portfolio
Rebalancing a portfolio from time to time can help reduce risk and maximize returns. It helps maintain a balanced portfolio by preventing overconcentration in certain asset classes, which can increase the risk of loss. Rebalancing also allows investors to take advantage of market movements and improve overall portfolio performance by selling assets that have performed well and buying assets that have underperformed.
In addition, rebalancing provides a disciplined approach to portfolio management, helping investors focus on their long-term investment goals and avoid making emotional decisions based on short-term market fluctuations.
Diversify Your Portfolio for a Vibrant Financial Future
Just like during Holi, where colors are thrown to create a vibrant, balanced mix, rebalancing your portfolio brings harmony to your investments. It ensures that your assets are in the right proportions, such as the perfect combination of red, blue and green colours.
So this Holi, celebrate not just with colours, but with a well-diversified investment portfolio that sets you on the path to achieving your long-term financial goals.
-The author is the COO at Tradejini. The views expressed are personal.
Disclaimer: The opinions and investment tips of experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
