Diversification
Spreading your money across different investments so that a fall in any one of them has a limited effect on your overall portfolio.
The idea behind diversification is simple: don't put all your eggs in one basket. By holding a mix of assets that don't all move together, you reduce the impact of any single one performing badly.
A diversified fund, such as an index fund holding dozens of companies, provides instant diversification compared with owning one or two individual stocks.
Key points
- Reduces the risk of any single holding.
- Works best when holdings don't move in lockstep.
- Funds offer built-in diversification.
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Related terms
A mutual fund that simply tracks a market index, such as the Nifty 50, rather than trying to beat it.
VolatilityHow much an investment's value swings up and down over time.
Net Asset Value (NAV)The per-unit value of a mutual fund, calculated as the total value of its holdings minus expenses, divided by the number of units outstanding.
Expense RatioThe annual fee a mutual fund charges to manage your money, expressed as a percentage of your investment.