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66. '' The purpose of diversification is to improve returns while reducing risks.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The Fund Manager invests the money thus collected in different types of securities depending on the scheme's objectives .These could range from shares to debetures to money market instruments. The unit holders share the income earned through these investments and the capital appreciation the scheme realizes in proportion to the number of units they own (pro rata). Thus , a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified , professionally managed portfolio at a relatively low cost. Anyone with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. It is well known that Mutual Fund manager use diversification as a strategy across various asset classes and also within an asset class to enhance the performance of their schemes .The purpose of diversification is to improve return while returning risk.
Ans: Diversification can be acheived in many different ways in a portfolio. Individuals can diversify across one type of asset classification such as stocks. To do this, one might purchase shares in leading companies across many different (and unrelated ) industries . Many other diversification strategies are also possible .One can diversify one's portfolio across different types of asset (stocks, bonds and real estate, for example) or diversify by regional allocation (such as state , region, or country) . Thousand of options exit .Luckily, in almost every effictive diversification strategy , the ultimate goal is to improve returns while reducing risks