As the saying goes – 'Do not put all your eggs in one basket'.
This is best applicable in the world of investments. It is often said diversify
to balance risk. Diversification in financial investments is a strategy to invest
in different asset classes (gold, equity products, debt products, etc.) to minimise
the risk of overall portfolio.
The objective of diversification is to lower the average risk of the portfolio.
The positive performance of some assets will neutralize the negative performance
of other assets in the portfolio. Thus, reducing the overall risk of the portfolio.
Mutual Funds invest in different asset classes like debt, equity, gold, combination
of these, etc. Equity based funds too have a wide range of offerings like diversified
equity funds, sectoral funds, etc. Likewise debt funds have investments
in central government bonds, state government bonds, etc.