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Diversification and Stability: How Mutual Funds Can Mitigate Investment Risks

Today, more and more people have been investing in mutual funds. And among those new to investing, you might often hear the term “diversification” being mentioned. When it comes to investing, diversification is really important. 

What is Mutual Fund Diversification?

Diversification means spreading your investments across many different assets. Mutual funds help with diversification too. Therefore, investors don’t have to invest all their money in one asset. Instead, they can invest in different assets and reduce the risk of capital loss. There are various categories of mutual funds, like Equity Funds (which invest in different types of stocks), Debt Funds (which invest in safe assets like government securities), and Hybrid Funds (which invest in both stocks and safe assets).

Benefits of a Diversified Mutual Fund Portfolio

Diversifying your assets reduces your risk. When you invest in different funds, the risk is spread out. So, if one investment doesn’t do well, the other investments can help offset the loss and maintain stability. However, this feature has additional benefits. Here are some of them:   

  • Helps you invest in many sectors  
  • Helps you avoid investments that have a high level of correlation  
  • Helps you achieve long-term financial objectives
  • Helps you learn about several asset classes

How to Diversify Your Mutual Fund Portfolio

Here are some tips for portfolio diversification: 

  1. Experts recommend having around 10 to 20 different investments in your portfolio. Each of these investments should be unique and not too similar.    
  2. It’s important to spread your investments across multiple industries. You can invest in funds from different industries that don’t move in the same direction. These industries should show different patterns over time.    
  3. Besides diversifying across industries, it’s also important to diversify across other asset classes. This means allocating a portion of your portfolio to bonds, commodities, real estate, alternative assets, etc.

How Should You Build an Investment Portfolio?

Investors need to make smart decisions to maintain a healthy and profitable portfolio. Here’s how they can do it: 

Choose a Fund Category  

The first step is deciding which category of funds to invest in. This decision is crucial, so investors should carefully consider and understand each category before investing. Selecting the right fund category will help investors lay a strong foundation for their portfolio.

Choose the Best Funds in the Chosen Category

The next step is to pick the appropriate funds within that category. This decision may depend on the investor’s risk tolerance, return expectations, investment costs, and overall investment goals. Also, it’s important to ensure that the selected funds have different underlying assets in order to benefit from diversification. 

Avoid Overdoing It

While having adequate funds to invest in is important, it’s also crucial for investors to know when to exercise restraint. Over-diversification can be detrimental to the portfolio over time. It can also become burdensome and costly for the investor.

How Multipl Can Help You Build Your Mutual Fund Portfolio?

Multipl, the best mutual fund app, aims to simplify and streamline investing and saving. It offers users a convenient way to invest in mutual funds.

Asset Allocation

Multipl thoroughly analyses various factors to determine optimal asset allocation and mutual fund category. This process takes into account your risk profile, goal time horizon, goal amount, and market valuation. By tailoring these aspects to your specific circumstances, the app creates a personalised investment strategy that aligns with your objectives.

Goal-Based Investing 

Financial freedom differs from person to person. Some may prioritise saving for retirement, while others may focus on purchasing a home or funding their child’s education. The Multipl app allows you to set specific financial goals and invest accordingly. Whether you’re looking for long-term or short-term goals, the app offers a range of solutions tailored to your objectives. 

Personalised Recommendations 

Beginners may find investing in mutual funds overwhelming because of the range of options available. The Multipl app addresses this challenge by providing personalised recommendations based on your risk profile and financial goals. The app’s intuitive interface and user-friendly features empower you to make smart investment decisions without the need for extensive financial knowledge.   

Transparent and Cost-Effective Investing 

One of the key benefits of the Multipl app is its transparency. The app provides detailed information about each mutual fund, including past performance, expense ratios, NAV, and fund size. This transparency enables you to make informed investment choices. Also, the app eliminates the need for middlemen, resulting in lower costs and higher profits for investors.   

Convenience and Flexibility 

Traditional investment methods often involve cumbersome paperwork and time-consuming processes. The Multipl app eliminates these hassles by offering a seamless digital investing experience. Today, investing is as easy as a few taps on your smartphone. Besides, the app allows you to track your investments in real time.

Final Words

Using Multipl, you can make mutual funds a reliable tool for mitigating investment risks and promoting financial stability. So, download the Multipl app today and start investing now!

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