Most investors believe they are diversified.

They proudly say things like:

• “I have 5 mutual funds”

• “I’ve invested in large cap, mid cap, and small cap”

• “I have SIPs across different AMCs”

But here’s the uncomfortable truth:

Owning multiple funds is not diversification. It is often just duplication.

The Myth of Diversification

Let’s take a typical “diversified” portfolio:

• 2 large-cap funds

• 2 mid-cap funds

• 1 flexi-cap fund

• 1 ELSS fund

On paper, this looks spread out.

In reality?

• All funds are equity-heavy

• Many stocks overlap (HDFC Bank, Reliance, ICICI Bank show up everywhere)

• Performance is tied to one asset class: equities

So when markets fall, the entire portfolio falls together.

That’s not diversification.

That’s concentration disguised as variety.

What Diversification Actually Means

True diversification is:

Deliberate allocation across asset classes that behave differently under different economic conditions.

It’s not about how many investments you have.
It’s about how they respond to the same event.

A well-diversified portfolio typically includes:

• Equity (growth)

• Debt (stability)

• Gold (hedge against uncertainty/inflation)

• Cash or liquid funds (opportunity buffer)

• Optional: Alternatives (AIFs, REITs, global exposure)

The key idea:

When one asset struggles, another should hold or outperform.

Bad vs Good Diversification

Bad Diversification

Portfolio A (₹10 lakh):

• ₹3L Large Cap Fund

• ₹2L Mid Cap Fund

• ₹2L Small Cap Fund

• ₹2L ELSS

• ₹1L Sectoral Tech Fund

What’s wrong?

• 100% equity exposure

• High correlation across investments

• Vulnerable to market crashes

 If markets fall 20%, portfolio could drop ~18–25%

Good Diversification

Portfolio B (₹10 lakh):

• ₹5L Equity (diversified across market caps)

• ₹2L Debt funds / bonds

• ₹1.5L Gold

• ₹1L International equity

• ₹50K Cash/liquid

What’s better?

• Multiple asset classes

• Lower correlation

• Better downside protection

Same 20% equity crash might result in only ~8–12% portfolio drawdown

Diversification Is About Behaviour, Not Labels

Two assets are diversified only if they behave differently.

If everything in your portfolio moves in the same direction at the same time,
you are not diversified, no matter how many funds you hold.

Who Benefits From Proper Diversification?

1. The Long-Term Wealth Builder

Someone investing for 10–20 years benefits from:

• Smoother compounding

• Lower emotional stress

• Ability to stay invested during downturns

They don’t panic-sell at the bottom.

2. The Near-Goal Investor

If you’re 2–3 years away from:

• Buying a house

• Funding education

• A major life event

• Retirement

Diversification protects you from:

• Market timing risk

• Sudden capital erosion

 Equity-heavy portfolios here can be dangerous.

3. The Opportunistic Investor

Investors with cash/liquid allocation benefit during crashes.

When markets fall:

• Most people are stuck (fully invested in falling assets)

• Diversified investors deploy capital at lower valuations

Crashes become opportunities, not threats.

4. The Conservative Investor

Not everyone wants maximum returns.

Some want:

• Capital protection

• Predictability

• Low volatility

Diversification helps construct portfolios aligned with risk tolerance, not just returns.

When Diversification Fails

Diversification can fail if:

• You over-diversify into too many funds (diworsification)

• You ignore asset allocation and focus only on products

• You keep changing allocations based on market noise

• You don’t rebalance periodically

The Real Question to Ask

Instead of asking:

“How many funds do I have?”

Ask:

“How will my portfolio behave if markets fall 20% tomorrow?”

That single question reveals whether you are truly diversified.

We believe:

Diversification is not a checklist.

It is a strategy with intent.

It requires:

• Understanding asset classes

• Aligning with goals

• Managing correlations

• And most importantly, discipline

Because in investing:

You don’t win by owning more. You win by owning differently.