Sectoral risk and reward: how equity funds can help

Of all the types of diversification, sectoral diversification is the hardest to achieve simply because the correct mix is the hardest to figure out. Sectoral diversification is about not having too much exposure to any one sector. However, there are two attendant problems. One, how much is too much? And secondly, how little is too little? The answer to these questions may surprise you. Ideally, sectoral diversification should not be your problem at all. You should be investing in well-chosen diversified equity funds with a good track record and that's that. Once you have done that, you shouldn't bother about whether 30 per cent of your funds are in financial services companies or 10 per cent in infrastructure. You invest in a mutual fund so that such decisions can be off-

This article was originally published on October 30, 2020.