How do I diversify my portfolio beyond stocks?

How do I diversify my portfolio beyond stocks?

The best portfolios are ones that balance the risk-reward trade-off effectively. Portfolio construction depends upon a lot of factors-first and foremost being your age, risk appetite, investible surplus, financial goals, etc. Since these factors are different for everyone, I will give you some options that are available to help you make an informed choice:
i. Debt mutual funds: This is an ideal investment option for balancing-off against stocks as they offer non-volatile returns. They are suitable for both short-term and medium-term investment horizons. Debt funds are safer as compared to equity and related funds as they primarily invest in rated and risk-free government and corporate bonds. There is virtually no risk in government bonds but for corporate bonds - the investor should check the rating of the bond by different credit rating agencies.
ii. Equity-linked savings schemes: ELSS is a type of mutual fund. The advantage that ELSS has over a regular mutual fund is that they are tax saving in nature. It also has the lowest lock-in period among tax-saving instruments and is expected to give some of the highest returns.
iii. Balanced mutual funds: The objective of these funds is to provide a balanced mix of safety, income and capital appreciation. The strategy of balanced funds is to invest in a portfolio of both fixed income and equities. These funds are also affected as a result of fluctuations in stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
iv. Fixed deposit: For pure portfolio diversification purposes, FDs work well as an investment. However, they might not give sizable returns after adjusting for inflation. But this is the place to keep the money if you want to prioritize the safety of investment over high returns. Both debt funds and fixed deposit give similar returns, but FD guarantees capital protection and returns while the same is not applicable to debt funds.
v. Exchange-traded funds (ETFs): An ETF is a type of fund that owns underlying assets (shares of stock, bonds, oil futures, gold bullion, foreign currency, etc.) and divides ownership of those assets into shares. ETFs price movements mimic the movements of their underlying assets. In essence, they have properties of both stocks and mutual funds. ETFs pool funds from investors to invest in a mix of different assets. And like stocks, they can be traded on the stock exchanges during trading hours.
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