What are the strategies for building a diversified investment portfolio? MintGenie explains

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small cap allocations so that the portfolio is not highly lopsided towards a particular market capitalization and again is an all-season portfolio. Also, including a fair proportion of all market caps gives a flavour of stable growth to the portfolio. Large caps are more steady and less volatile whereas mid and small caps can give aggressive returns with more volatility.

So a healthy combination of all market caps as per the risk appetite of investors can make for a great portfolio. But beyond this – one has to also adhere to two other forms of diversification. First is to split one’s portfolio across multiple different well-known investing brains i.e.

across different fund managers. One cannot be heavily skewed towards one fund house or one particular fund manager as even if they manage different funds, the underlying composition or philosophy rarely differs. Hence, dividing the allocation amongst few highly acclaimed fund managers is a great diversification strategy.

One has to be astute enough in portfolio construction to avoid duplication of funds with similar portfolio managers because rarely will it give a very different portfolio and hence just add to the number of schemes but not to the return profile. Last, is to diversify across differing investment styles. One has to be fairly allocated across styles of quality, momentum, growth, value, low volatility etc to gain from short market cycles within the large market phases.

Factor based investing is a very popular concept internationally and this has just made its entry in the Indian market. Mostly savvy investors capture these styles through various fund managers or fund houses who claim to adhere to these underlying approaches of investing. But it’s very