Portfolio Diversification
Portfolio is the basket of one’s investments. And as it is commonly advised not to put all your eggs in one basket, it applies to your portfolio also. There should be diversification in your portfolio, so as to minimize the risks associated with each product. And not only risks, a diverse portfolio ensures that you get optimal returns from various products at different time frames, as per your requirement.
The following features of products make them unique from each other
- Maturity tenor.
- Whether the product can be redeemed before maturity.
- Whether there is any penalty if the product is redeemed before maturity.
- Amount to be invested
- Degree of default risk associated with the product
- Percentage of market risk associated with the product
- Tax implications.
- Liquidity.
- Whether they can be offered as collateral for obtaining loans.
Apart from the features of the product, it is also advisable to take the age, risk appetite and the financial goals of the investor while allocating funds to different products in one’s portfolio.
And also, it is advisable to review the financial goals and the performance of the products from time to time, to allocate and reallocate funds so as to derive maximum benefit.
