Diversification must be the pillar on which your investment portfolio is constructed. We don’t say it because it sounds cool, but because it is true.
There are many aspects to diversification:
- Between asset classes: equities, debt, real estate, precious metals, commodities
- Within asset classes: all your equity exposure will not be to one stock or one equity fund
- Across geographies: investing across countries helps you benefit from different economies – developed, emerging, frontier
- Across global stocks: investing in stocks which are excellent for wealth creation but not listed in India
- Across investment styles: growth, value, top down, bottom up
Add one more: across asset management companies, or AMCs. It is not financial malfeasance that is the worry. But if you are diversifying across so many parameters, why change your stance now?
There will be a similarity in the thought process of fund managers within an AMC. Fund houses tend to take a particular top-down view, which could pan out well, or not.
Fund houses also tend to have a particular fund management style and investment philosophy that is applicable across its funds.
Each fund house follows its own processes, systems, controls and compliance oversight. This is with regards to the investment process and risk management. What if there is a flaw that will show up later?
Imagine an exodus of investment processionals from an AMC. If all of your funds are actively managed funds with the same firm and a lot of people are leaving, that's not going to be disaster overnight, but it could have repercussions over time.
Diversification is not to increase returns but to ensure fewer losses. So it would be logical not to deposit all your eggs with one AMCs.
