2 Replies to “can any one explain brifly about diversified portfolio?”

  1. A diversified portfolio is one which has a lot of different investments in it. For example, if you had $ 10,000 to invest, you would not want to put it all into one stock – or even into one type of investment. You would want to diversify by investing in several types of securities. You might pick a couple of stocks or a couple of mutual funds and hold some bonds or cash too.


  2. Udaya,
    A diversified portfolio is one that has exposure to all sectors of a market and at the same time one that does not have heavy exposure to one single market.

    First you need to come up with an asset allocation patten. i.e, you need to decide in which segment of companies you would like to invest more. based on the asset allocation, then you need to shortlist the best possible companies that are trading at attractive valuations and the go ahead with buying them.

    For eg. a sample asset allocation could be Equity – 70% & Debt – 30%

    This asset allocation for equity & debt should be in such a way that the % in debt should be your age and the % in equity should be 100 minus your age. For eg. if your age is 25 then equity should be 75 and debt should be 25%

    Equity Split up: (for the 75% that you are going to invest in Equity)
    FMCG 20%
    Pharma 25%
    Automobiles 10%
    Banking 15% etc

    The reason for having your investment across segments is to ensure that your portfolio is shielded against shortcomings in one particular sector. If your exposure to a particular sector is very high then your portfolio may not be balanced and you are exposed to sector specific risk. Remember the old saying “Do not put all your eggs in the same basket”

    Diversification is the best way to minimize risk and maximize returns.

    Debt split up: (For the remaining 25%)

    Bank FD 50%
    NSC 25%
    PPF 25%

    This is a diversified portfolio where you have 25% exposure of your investment in safe instruments. The remaining 75% is split up across different sectors so that your investment goes up steadily at the same time shielding you against any uncertainties in any one segment.

    Let me tell you why you need a diversified portfolio.

    Two years back IT Stocks were the the hottest buys and people bought it like anything. If say you had bought 50% of your portfolio’s worth with IT, in the current scenario you would have lost half of that money. Instead if you had reduced the exposure to IT to 20% and had invested in FMCG 15% and pharma 15% then you would have lost around 25% because FMCG and pharma stocks lost only 15% of their value. in fact some pharma stocks even gained 10% of their value…

    Happy Investing.

    Cheers,
    Anand
    mail me at [email protected] if you need any more details.





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