Stability in Bull and Bear Markets: Diversified Equity Funds comprise of all markets cap stocks. Large cap stocks due to high end market capitalization tend to be stable in bear markets and show moderate appreciation in bull markets. Mid and small cap stocks respond to market stimulations. While, they show higher appreciation in bull markets, their depreciation is in sync with the bear markets. The differences in the performance of these market caps get balanced in the Diversified Equity Funds. In a bear market the mid and small cap stocks have a tendency to be volatile even if the large cap stocks shows moderate depreciation, thereby maintaining a steady balance. Due to this stability it allows investors with a varying risk appetite to park their investments in these funds.
Reduces the Need to Diversify: Financial planners and advisors keep emphasising about the need to diversify your investments. It is said that diversification in various asset classes determines the return of the portfolio and not the individual funds. Investing in Diversified Equity Funds reduces the need to diversify your portfolio as you choose an already diversified fund depending upon your investing needs and risk taking ability. As an investor if you are looking for stability in your investments, you could allocate a larger portion of your investments in Diversified Equity Funds and the remaining in Small and Mid Cap Funds. However, If you are an aggressive investor and ready to take high risk for long term appreciation then Mid and Small Cap Funds could be ideal investments for you.
A universal Appeal: The fund has a component to appeal to all kinds of investors: the risk takers, the safe player and the flexible investor. It also reduces the need to diversify. Hence, as an investor if you like to manage your own portfolio then this reduces your need to diversify to a certain degree. It provides stability to your portfolio along with a return range of moderate to high.