Portfolio Diversification - Importance of choosing right asset class

Remember the game of hide & seek you must have played as a child?

Team EduFund

Remember the game of hide & seek you must have played as a child?  

Pin on Birthdays

What was the strategy you implemented back then? Every member of the team should hide in a different place so that the seeker is not able to find all the players.  

In essence, this is what diversification is all about when it comes to investing. Let us see in detail the benefits of diversification -  

What is Portfolio Diversification?

Portfolio diversification is the process in which you allocate some portion of the portfolio in the different asset class (such as gold, equity, etc.). Imagine you invested your entire portfolio in equities and Covid-19 happens. While the market started recovery in a month after the correction but it dampens your liquidity and financial preparedness.  

So, what is the purpose of diversification?  

Simply put, the fundamental purpose is to minimize the risk on your investments; specifically, the specific risk associated with the market.  

How do you diversify?

An investor can spread out investments by way of the following -  

Spread out your investments -

Investing in equities is good, but that doesn't mean you should put all your wealth in the same investments. It would help if you also considered investing in other asset class such as gold, real estate, fixed deposits, etc.  

Explore other investment avenues

Consider adding You could also add other investment options and assets to your portfolio. Mutual funds, bonds, real estate and pension plans are other investments you can consider. Also, make sure that the securities vary in risk and follow different market trends.  

Consider Index or Bond Funds

Adding index fund to your portfolio is a sound strategy to be with the market. These are a highly cost-effective investment instrument. Merely investing in an index fund, your wealth would have grown 1.45x in 71 months (see chart below).  

Amount Invested

Rs 7,10,000

Amount Accumulated

Rs 10,27,616

Annual Returns, XIRR (%)


Source: Value Research, EduFund Research

Consider adding foreign assets

While India offers a great story of growth considering its young population, but we cannot rule out the volatile currency of the economy. For goals such as sending a child abroad for education, you must diversify currency risk. The rupee has depreciated at 5% over 10 years, thereby getting devalued. Also, it is seen that USD dominated assets have performed well over the years, generating 10% annual returns against Indian assets that generated 7%.  




100 USD in Sensex

100 USD in DJIA

100 USD in Sensex

100 USD in DJIA
















Note: CAGR – Compounded Annual Growth Rate

Source: Yahoo Finance, BSE India, EduFund Research

Reasons of performance –  

  • DJIA grew at 10% CAGR in past years ending Sep-2020 whereas Sensex grew at 7% CAGR during the period
  • Rupee has depreciated at 4.8% CAGR over 10 years ending Sep-2020  

One of the significant and most important benefits of diversification is that the portfolio can absorb shocks during a market downturn. The risk gets evenly spread out across asset class, and if you are saving for an investment, the likelihood of you getting derailed from your track gets minimal.  

Key Takeaways

  • Diversification is a strategy that allows mixing a wide variety of investments in a portfolio.
  • Portfolio can be diversified as per asset class both within the class and also geographically
  • Diversification helps in optimizing risk-adjusted returns

US Dollar Printing leading to Dollar Softness - What you should do?

How does the central bank put money in the economy? The Federal Reserve prints money and buys bonds equivalent to the money printed from the financial institutions.

February 13, 2021
5 Min Read
Portfolio Diversification - Importance of choosing right asset class

Remember the game of hide & seek you must have played as a child? What was the strategy you implemented back then?

5 Min Read
Is your alpha chasing habit compromising your goal?

The Indian market, after touching all-time high in February 2020 plunged to Covid-19 outbreak. The market has corrected significantly since then but has managed to regain its earlier levels last month.

February 2, 2021
5 Min Read

Become an EduFund parent.

Download the EduFund app and secure your child’s future in a few minutes.
Best app for investing
Stay on top of your game. Fresh updates delivered straight to your inbox.
We promise, we won’t spam!
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

SBI  |  HDFC  |  ICICI Prudential  |  Aditya Birla Sun Life  |  Nippon Life India  |  Kotak Mahindra  |  Axis  |  UTI  |  IDFC   |  DSP  |  Franklin Templeton  |  L&T  |  Tata  |  Mirae  | Edelweiss | Sundaram  |  Invesco  | Motilal Oswal  |  Canara  |  LIC


This website including the ‘[EduFund]’ platform is owned, operated and maintained by Helena Edtech Private Limited, a company incorporated under the laws of India. The platform and the services thereunder are provided on an "as is" basis. Use of the service and the platform is at your own risk. Company makes no warranty that the use of the service and the platform will be continuous, uninterrupted, bug-free, error-free, virus-free, free of defects, free of technical problems, nor that it will meet all of your needs. To the extent permitted by applicable law, Company expressly disclaims all other warranties, conditions, results, guarantees, or representations with respect to the service and the platform, whether express or implied, including, but not limited to, the implied warranties of merchantability, merchantable or satisfactory quality, fitness for a particular purpose, non-infringement of third party rights, or arising from the course of performance, course of dealing, or usage of trade.

Investment in securities market are subject to market risks, read all the related documents carefully before investing. The valuation of securities may increase or decrease depending on the factors affecting the securities market. 

EduFund and the EduFund App are the brand and product of Helena Edtech Private Limited
“An affiliate of the Company, i.e. Samyama Advisors Private Limited, is registered with the Securities and Exchange Board of India (SEBI) as an investment adviser under the SEBI (Investment Advisers) Regulations, 2013 bearing the registration number [INA000015321]. Samyama Advisors Private Limited may provide investment advice to the clients through the Company's platform.”

Registered Address: 30, Omkar House, Near Swastik Char Rasta, Navrangpura, Ahmedabad Gujarat, India – 380009
Transaction Platform Partner : BSE Star MF (with Member code-51573). CIN No: U67100GJ2020PTC112589.  RIA Number: INA000015321 GST No: 24AAFCH2122L1ZU