Portfolio Diversification: 7 ways how “Not to break the eggs”

“Do not put all your eggs in one basket” is an idiom which we picked up at school while familiarizing ourselves with the subtleties of the English language.

Some amongst us have learnt it the hard way though, when they have inadvertently dropped a basket full of eggs.

The result eventually is a mess, monetarily, physically and visually.

So what is the remedy? Obviously it is simply by dividing the eggs and keeping them in separate baskets.

In the financial world a lot of investors follow a path to the contrary. They fail to heed this time-tested idiom.

Their fate is the same as that of broken eggs.

This is exactly what portfolio diversification means—spreading your investments across different asset classes to reduce risk.

Portfolio diversification in India is gaining more importance as investors seek long-term stability.

Table Of Contents:

I. Across Asset Class:
II. Within Asset Class:
III. Across Geographical boundaries:
IV. Across Capitalization:
V. Across Time:
VI. Across Style:
VII. How to diversify your portfolio in India:

How to diversify your investments?

Even at the cost of repetition, it is necessary to reiterate that by not diversifying a portfolio the investor runs the risk of being financially wiped out.

It is always useful to remember that if the base of a physical structure, be it a building or a monument, is wide, it is literally on a better ground.

Thus, by diversifying or spreading out the investment corpus, the investor is on a better footing.

Diversification of investment portfolio is not just about buying multiple funds; it’s about balancing risk and reward effectively.

Let us consider an example where a high net worth individual has assets worth rupees 5 crore.

Out of this, the value of his immovable asset in the form of an apartment in a prime location in Mumbai is worth 4.5 crore rupees.

If suddenly by some untoward act of God, his apartment is damaged beyond redemption, then his entire investment value comes to nought.

Another example is about this gentleman who was fond of purchasing stocks of one particular IT company.

These stocks had given him lavish returns during previous years and so he never thought beyond it.

One day the market went Topsy-Turvy and all his money went for a toss.

These are examples which we commonly come across and they adequately highlight the ill-effects of non-diversification.

This is why stock diversification and investment diversification strategy are crucial in long-term planning.

Diversifying your investment portfolio protects against such concentrated risks.

Here are six very useful options for readers and investors which can be followed for portfolio diversification:

I. Across Asset Class:

Not all investors are well conversant with the nuances of stock markets and it is always safe to investment in an array of avenues like stocks (equity , mutual funds), debt instruments, commodities like gold and/or silver etc., real estate and retain some liquid cash.

This type of asset diversification spreads risk across equity, debt, real estate, and commodities.

II. Within Asset Class:

A particular asset class will be made up of similar type of option across various companies or instruments.

The equity investments can be spread across different sectors. FDs can be made with different banks.

Instead of investing in one equity fund, you may divide that into 3 different equity funds.

Portfolio diversification eliminates sector-specific risks when you divide investments across industries.

III. Across Geographical boundaries:

Investors can always choose to spread their investments globally.

This will add a dimension to the investment corpus as it will provide the added advantage of benefits accruing out of currency fluctuations.

Properties can be purchased in different countries across the world.

This will give the investor a fair chance of minimizing losses in the event that a country is rocked by natural calamities or political upheavals.

This will insulate you from the currency fluctuations.

Diversify across investments and geographies to reduce political and economic risks.

IV. Across Capitalization:

When you invest in stock market , you can spread your investments across different market capitalization like small cap, mid cap and large cap.

You can do this diversification when you invest directly as well as when investing through mutual funds.

Large caps are less volatile when compared to mid and small caps.

Mid and small cap has got more return potential when compared to the large cap.

This approach is called stock portfolio diversification and helps balance growth with stability.

V. Across Time:

The investor can spread out his investments systematically based on the time index. Some short term (say 3 years), a few medium term (3 to 5 years) and other long term (above 5 years) investments will provide a good balance and flair to the portfolio.

A little planning will help the investor in deciding his priorities in life and investment accordingly.

From purchase of a house, to studies of children and eventually their marriage, everything can be achieved by taking time-bound investment decisions.

How to diversify SIP? By aligning each SIP to short-term, medium-term, and long-term goals.

VI. Across Style:

By style it is meant that the investor can choose between regular income generating and capital appreciation.

You can also spread your equity investments across different investment styles like value investing and growth investing.

You can diversify your debt portfolio with the investment styles like accrual based fund management and duration based fund management.

This ensures holistic portfolio management without over diversification.

It is relevant to state that over-diversification can prove to be counterproductive, after all ‘too much of anything is bad’ and going by Warren Buffet’s dictum “Wide diversification is only required when investors do not understand what they are doing”, it is better to not overdo things.

A sensible approach, one in which the investor will remain standing, a balanced portfolio which is not too wide, is considered ideal.

In a well-diversified portfolio, diversification in investing is a strategy—not a random spread.

The purpose of diversification in investment is simple: reduce risks and optimize returns.

VII. How to diversify your portfolio in India:

In India, diversification is not just about splitting money across multiple funds—it’s about choosing the right mix of assets suited to your financial goals and risk appetite.

For example:

• Equity mutual funds & stocks – For long-term wealth creation and higher growth potential. You can diversify equity portfolio further across large-cap, mid-cap, and small-cap.
• Debt instruments – Safer avenues like PPF, EPF, fixed deposits, and government bonds provide stability and assured returns.
• Gold – Traditionally considered a hedge against inflation. Investors can choose between physical gold, Gold ETFs, or Sovereign Gold Bonds.
• Real Estate – Still a preferred choice in India, though liquidity and maintenance costs need to be considered.
• SIPs (Systematic Investment Plans) – A simple diversification method where you can allocate SIPs across different asset classes and time horizons.

How to diversify investments in India?

Start by dividing your portfolio into equity, debt, and gold. Adjust the percentages based on your age, financial goals, and risk-taking ability.

Example allocation for a 30-year-old investor:

• 60% Equity (mutual funds + direct stocks)
• 25% Debt (PPF, bonds, FDs)
• 10% Gold (SGBs, ETFs)
• 5% Cash/Liquid funds for emergencies

This way, your portfolio diversification strategy in India is holistic, future-ready, and shields you from market shocks.