A diverse portfolio is a healthy one, as diversifying your share holdings across a range of companies, industries and sectors minimises the risk. This is because even if one industry is doing poorly for whatever socioeconomic reason, and you are taking a loss on those stocks, chances are your holdings in the other sectors will still stay positive.

As an example, let us suppose you own 100 stocks; 25 in automobiles, 25 in banks, 25 in consumer durables and 25 in Engineering/Capital Goods. If, for some reason, automobiles start doing poorly, your other investments remain safe.

There are other benefits to diversity beyond risk management. Another similar benefit is that it increases your potential for better returns.

How To Diversify Your Portfolio?

So, how exactly do you go about diversifying your portfolio? The most obvious way to do so is by buying stocks across a wider range of industries, but you can also do so by diversifying your method of investment. One method of doing so is by investing in future options on trading.

Also called F&O, it is a method of investing. You can understand it by thinking of it as placing bets; it allows you to purchase stocks at a set price on a set date. As an example, say you purchase an F&O in Tata Industries, agreeing to buy 10 shares of Tata at 1000 rupees in exactly a month. Come that date, you are under an obligation to buy the stocks at 1000 rupees, even if the price has dropped to 500 rupees, in which case you make a loss. On the other hand, if the price has gone up to 1500, the company is still under an obligation to sell at 1000 rupees, allowing you to make a great profit.

Another method is by investing in an IPO or Initial Public Offering, which is when a company that had been previously privately owned goes public and allows its shares to be bought publicly. Investing in these homes has the potential for great profits as they are sold at lower rates than they would once they go live.

How To Follow The Stock Market?

Following the stock market is important because it helps you protect your money and prevent losses. The easiest way to do so is by following the Sensex, which is India’s largest benchmark index and tracks 30 of the largest, most commonly traded companies. You can find out more about this by googling the Sensex index today.

Many apps also enable you to track the share market as a whole. To find one, simply look up something along the lines of “share market today” You will find a host of apps, websites and other platforms. Choose one that best fits your needs.

Conclusion

Diversifying your portfolio is key to reducing volatility, increasing profits, and mitigating risk. Spreading your investments across multiple sectors protects your portfolio from making losses due to a single stock or single industry performing poorly.