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What is Diversification? Why would you diversify? Why would you want to avoid risk? How do you avoid




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Diversification is risk management technique which mixes various types of investments within
portfolio to lessen the risk. The aim of diversification is that portfolio containing different types
of investments will yield more returns and lesser risk rather an individual investment will have
higher risk.
There is a common saying that investor diversify risk by not putting all eggs in one basket which
means instead of investing in one type of security, investor must invest in various types of
securities including equity and debt. The reason behind diversification is to lessen the risk and
yield more returns.
Each and every investor aims to avoid risk because the focus is on getting maximum return on
their hard earned money.
Risk can be reduced by investing in various types of securities mainly equity shares and
debentures because if loss is incurred on one type of security then profit can also be earned on
other. If investment is done in only one type of security then chances of risk is higher.

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