Diversification is the practice of spreading investments across multiple asset classes, sectors, geographies, and securities to reduce the impact of any single investment's poor performance on the overall portfolio. The underlying principle is that different assets tend not to move in the same direction at the same time—when equities fall, gold or bonds may rise, partially offsetting losses. In India, a diversified portfolio might combine large-cap and mid-cap stocks, debt mutual funds, gold ETFs, and international funds. Diversification does not eliminate risk entirely, but it is one of the most reliable and time-tested tools for managing portfolio volatility without sacrificing long-term return potential.
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