How diversification with the help of equity and debt mutual funds is important in times of volatilit

The sharp fall in equity markets during the onset of Covid in March last year in 2020 was a wake-up call for investors to diversify their investments across sectors, assets and market caps. As the adage goes about not putting all your eggs in the same basket, if you invest your entire money in stocks of a single company or a single asset, you may end up losing money.

Some company stocks could be more volatile than others. Thus, it is a prudent decision to invest in a portfolio of different stocks. As a retail investor, it is complex and time-consuming to pick and manage multiple stocks. This is where equity mutual funds can help. Equity mutual funds invest in different stocks, thereby overcoming concentration risks and helping you minimize the downside risks.

The meaning of an equity mutual fund is a scheme that as per the scheme information document invests a minimum of sixty-five per cent of its net assets in equity and equity-related instruments.. It is suitable for investors with a high-risk appetite and a long-term investment horizon. There are different types of equity mutual funds such as categorization as per market capitalization; Large, mid and small cap, categorizing as per styles; value & contra, sectorial/thematic funds, ELSS (Equity Linked Savings Scheme) etc.

The current pandemic has shifted the focus of retail investors towards debt mutual funds. A debt mutual fund, also known as a fixed income fund invests in bonds and other debt securities. It invests in Treasury bills (T-bills), Government securities (G-secs), Debentures, Commercial Paper, Certificates of Deposit and others.

When you compare Equity Funds vs. Debt Fund, equity mutual funds generally have the potential of generating higher returns over the long-term. If you have a long term horizon and have a risk capacity to bear volatility, then an equity mutual fund is for you. However, if you are looking for a short-term horizon of less than three years, then you might consider investing in debt mutual funds that are relatively less volatile and has potential to help you achieve short term goals.

A portfolio mix of equity and debt mutual funds has potential to help to minimize downside risks due to market ups and downs. Last but not the least, a periodical review is needed to ensure that the assets you have invested in are aligned to your intended goals. As you near your financial goals, you may want to have a greater proportion of your portfolio invested in debt mutual funds than in equity mutual funds. Those who are starting to invest and do not have too many financial obligations and to investment for long term may choose to invest a larger portion of their investments in equity mutual funds.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

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