Diversified funds invest across market capitalizations and sectors. Their portfolio is usually a mix of large cap, midcap and small cap stocks. These funds are also sometimes called multicap funds. They usually give higher returns than large cap funds in bull markets, but their downside risk is much less than small and midcap funds in bear markets. Diversified multicap funds gave an average 45% returns in 2014. The chart below shows the annual returns of diversified funds from 2012 to 2014.
