Owning eight funds is not diversification if all eight fall together. Our founder on what actually spreads risk, and why the dull holding is the one doing the work.
Diversification is the most repeated word in investing and one of the least understood. In this conversation with Groww AMC, our founder Ajit Singh takes it apart: what it actually means, the version of it most portfolios are accidentally practising, and why the holding you are least happy with is often the one earning its place.
Eight funds is not eight decisions
The most common mistake is equating diversification with quantity. An investor holds four small-cap funds, or six funds that all lean on the same handful of large companies, and feels well spread. They are not. When that category has a bad year, every one of those holdings falls together, which is precisely the moment diversification was supposed to help.
Real diversification is a strategic blend of asset classes that behave differently under different market conditions. The test is not how many products you own. It is whether they can move in different directions at the same time.
The holding you dislike is doing a job
This is where discipline is hardest. Gold or debt will spend long stretches looking like dead weight while equity runs, and the instinct is to clear them out and back the winner. But those assets are what steady the portfolio when the trendy investment finally falters, and something always does eventually.
An underperforming asset held on purpose is not a mistake in the portfolio. It is insurance you are paying for in patience rather than in premium, and it only pays out if you still hold it when the cycle turns.
Why multi-asset funds do some of this for you
One practical route is a multi-asset allocation approach, where the fund manager holds equities, debt and commodities within a single structure and shifts the balance as macroeconomic conditions change. Because the rebalancing happens inside the fund, it can also be handled more tax-efficiently than an investor selling one fund and buying another every time the mix drifts.
That is not an argument for outsourcing every decision. It is an argument for recognising that rebalancing across asset classes is a fiddly, tax-sensitive job, and that there are structures built to do it. Our Asset Allocation and Portfolio Rebalancing calculators will show you where your current split actually sits.
The mismatch that does the real damage
The pitfall Ajit returns to is not picking the wrong fund. It is using a long-term asset for a short-term goal: money needed for a posting-related move or a school admission next year, parked in equity because equity has been doing well. When the timing is short, a perfectly good fund can still be the wrong answer.
Match the horizon first, then diversify within it. A goal three years out and a goal fifteen years out deserve genuinely different portfolios, and no amount of fund selection fixes a horizon mismatch.
None of this requires complexity. It requires a structure: goals with dates, assets matched to those dates, and a mix that is not secretly a single bet wearing several names. If you are not sure which of those your portfolio is, that is exactly the conversation to have with us.
Questions about your own plan?
A short conversation with a veteran-led team costs nothing and usually clarifies a lot.