Investing is a lot like cooking. Just as a chef combines different ingredients to create a delicious meal, investors can diversify their investments by combining diverse asset classes. One way to achieve this is by investing in mutual funds.

Mutual Funds India provides a convenient and efficient way to diversify investments, allowing investors to spread their money across different securities and asset classes. They allow investors to invest in a broad range of assets, such as stocks, bonds, and commodities, without requiring extensive knowledge or expertise.

Here’s how you can diversify your investments using mutual funds.

How do mutual funds help in diversification?

Before you invest in mutual funds online, you must determine your investment goals and risk tolerance. Your investment goals will guide you in selecting the mutual funds that align with your long-term investment objectives. Your risk tolerance, on the other hand, will help you choose the right fund balance that matches your comfort level with risk.

One of the key benefits of investing in mutual funds is diversification, which reduces the risk of loss in your investment portfolio. Mutual funds provide portfolio diversification across various asset classes, lower risk, and achieve long-term investment goals. The following types of mutual funds can help you achieve portfolio diversification.

1. Equity mutual funds: These mutual funds invest in stocks of publicly traded companies. Equity mutual funds are suitable for investors who seek capital appreciation over the long term in the stock market. These are considered risky funds and typically give higher returns.
2. Bond mutual funds: These mutual funds invest in fixed-income securities, such as government bonds, corporate bonds, and municipal bonds, rather than the share market. Bond mutual funds suit investors seeking a steady income stream and a low-risk investment.
3. Index funds: These mutual funds track a market index, such as the NSE NIFTY 50 or the BSE Sensex. Index funds are suitable for investors who want to invest in a broad range of stocks or bonds and seek lower fees than actively managed mutual funds.
4. Sector funds: Sector funds invest in stocks of companies within a specific sector, such as healthcare, technology, or energy. Sector funds are suitable for investors who want to invest in a particular industry or sector.

Portfolio re-balancement is essential to ensure portfolio diversification. It involves selling some of your mutual fund holdings and buying others to maintain the desired asset allocation.

For example, if your investment goal is to have 60% of your portfolio in stocks and 40% in bonds, you may need to sell some of your equity mutual funds and buy more bond mutual funds if the stock market has performed well. You can invest in mutual funds via a broking app or through different Asset Management Companies.

Asset Management Companies in India

Mutual fund asset management companies in India are financial institutions that manage mutual funds on behalf of their clients. They offer a range of schemes that cater to varying investment needs. They also provide professional expertise in managing mutual fund portfolios, enabling investors to achieve their financial goals.

Listed below are some of the major players in this space.

1. SBI Mutual Fund

The largest asset management company in India, it offers a diverse range of mutual fund schemes. It is a joint venture between the State Bank of India, India’s largest public sector bank, and Amundi, a leading European asset management company.

State Bank of India Mutual Fund has a strong presence in the Indian mutual fund industry and offers a wide range of mutual fund schemes, such as equity, debt, hybrid, and solution-oriented funds.

2. ICICI Prudential Mutual Funds

This leading asset management company offers a broad range of mutual fund schemes. It is a joint venture between ICICI Bank, one of India’s largest private sector banks, and Prudential plc, a leading international financial services group based in the UK.

ICICI Prudential Mutual Funds has a strong track record of consistently performing across its various mutual fund schemes. The asset under management (AUM) of the AMC as of the last day of the quarter ending March 2023 was around ₹490067.27 crore^[1].

3. HDFC Mutual Fund

This is another top asset management company in India established in 1999 with a total AUM of ₹4.5 Lakh crore^[2]. It is a joint venture between Housing Development Finance Corporation Limited (HDFC), India’s leading housing finance institution, and Standard Life Investments Limited, a leading asset management company from the UK.

HDFC Mutual Fund offers investors a wide range of mutual fund schemes, including equity funds, debt funds, hybrid funds, and solution-oriented funds. It also presents innovative investment options such as index funds, ETFs, and sectoral funds.

4. Axis Mutual Fund

Established in 2009, this AMC is a joint venture between Axis Bank and Schroders plc, a leading international asset management company based in the UK. Axis Mutual Fund offers a diverse range of mutual fund schemes, including equity funds, debt funds, hybrid funds, and solution-oriented funds.

The asset under management (AUM) of the AMC as of the last day of the quarter ending March 2023 was around ₹262292.4 crore^[3]. They strongly focus on research-driven investments and risk management, which has consistently helped it deliver competitive returns across its various schemes.

5. Aditya Birla Mutual Fund

Established in 1994, it is a part of the Aditya Birla Group, one of India’s biggest business conglomerates. Aditya Birla Mutual Fund has a strong track record of delivering consistent performance across its various schemes, focused on generating long-term wealth for investors.

The company has won several awards and accolades for its performance and commitment to customer service, which reflects its strong reputation and customer-centric approach.

Diversifying your investment portfolio using mutual funds can be a clever strategy to manage risk and potentially increase returns. Perform due diligence and choose mutual funds that align with your investment goals, risk tolerance, and time horizon.

Regularly review and rebalance your portfolio to ensure it remains diversified and aligned with your goals. With careful planning and execution, mutual funds can be a valuable tool in your investment strategy.