The goal of the Diversified Equity Mutual Funds is to diversify companies' assets across a wide variety of industries, regardless of their size or whether they are big, mid-cap, or small-cap. Pharmaceuticals, Banking and Financial Services, IT, Engineering, FMCG, Oil & Gas, Power and Infrastructure, Vehicles, Real Estate, etc. are typically these industries. Large -caps apply to large corporations with vast market capitalizations. Similarly, as their names indicate, mid-caps apply to mid-sized firms offering medium-sized capitalization, and small-sized firms refer to smaller firms with small-scale market capitalization.

Mutual funds, ULIPs (Unit-linked Insurance Plans), and other insurance providers sell Diversified Equity Funds. It gives investors the ability to profit from the economic growth of the business that they have invested in. A certain percentage of these profits is immediately passed on to investors who have invested in the company by buying their stocks or shares when a company achieves financial growth.

As terms and conditions for investments differ through ULIPs, company websites, and product brochures, investors are made aware of the guidelines.

What is a Diversified Mutual Fund?

Diversified equity mutual funds are mutual fund schemes that invest in equity or equity-related securities across different sectors and market capitalization segments. Diversification across sectors reduces the risk of investment. Individual stocks are exposed to three types of risk – company risk, sector risk, and market risk. By investing in a large number of companies, diversified equity mutual funds diversify the company-specific risks. By investing across different industry sectors (banks, automobiles, oil and gas, cement, capital goods, pharmaceuticals, fast-moving consumer goods, Information Technology, metals, chemicals, telecommunications, etc.), diversified equity mutual funds diversify the sector risks.

Diversified equity mutual funds also diversify across different market capitalization segments. This can help these mutual funds perform better than large-cap equity mutual funds which are focused on particular segments across different market cycles or conditions. The universe of stocks can be broadly divided into three segments based on their market capitalization. The market capitalization of a company (stock) is the share price of the company times the number of its shares outstanding.

Large-Cap Companies

Companies whose market capitalizations exceed Rs 10,000 Crores are known as large-cap companies. These are well-known companies with a fairly long history. These companies command a high percentage of the market share in their respective industry sectors. Given their large size, investors believe that these companies are better placed to survive downturns in the economy compared to smaller companies; as a result, these companies are perceived to be less risky and investors are ready to pay a premium for their shares.

Mid-Cap Companies

Companies whose market capitalizations range between Rs 2,000 Crores to Rs 10,000 are known as midcap companies. These companies have the potential to grow faster than large-cap companies and therefore, midcap stocks can give better returns than large stocks in the long term. However, these companies are thought to be riskier than large-cap companies.

Small-Cap companies

Companies whose market capitalizations are less than Rs 2,000 Crores are known as small-cap companies. Small-cap stocks can grow faster than midcap stocks but are riskier (more volatile) than midcap stocks.

Small and midcap stocks tend to be under-researched and therefore, their valuations tend to be lower than large-cap companies. By buying high potential mid and small stocks and holding them for a long period, investors can create a lot of wealth not only through faster earnings growth but also through valuation re-rating (upgrade). However, these stocks tend to suffer more than large-cap stocks in bear markets. It takes a lot of expertise in identifying good midcap and small-cap stocks.

Large-cap stocks tend to outperform small and midcap stocks in bear markets, while small and midcap stocks tend to outperform in bull markets.

Why Diversified Equity Mutual Funds?

Diversified equity mutual funds that invest in large-cap, midcap, and small-cap stocks tend to perform better (on a relative basis) in bull markets and bear markets. Diversified equity mutual funds tend to outperform large-cap funds in bull markets, but suffer less than midcap funds in bear markets. As such, diversified equity mutual funds are ideal investment choices for long term investments.

Top performing best diversified mutual funds

Here are a few recommendations of diversified mutual funds to invest in:

People Often Ask

  1. What is diversified equity mutual fund?
  2. Diversified equity mutual funds are mutual fund schemes that invest in equity or equity-related securities across different sectors and market capitalization segments.

  3. Which is the best-diversified equity fund?
  4. Some of the best- diversified equity funds are -

  5. Are mutual funds well diversified?
  6. Yes, mutual funds are well diversified and they have their own investment style and are not influenced by other types of mutual funds.

  7. How do you know if a mutual fund is diversified?
  8. If a mutual fund carries the mixture of rule of stocks and carefully crafted characteristics, then it is a diversified mutual fund.


Both investors with various investment strategies are suited to diversify mutual funds. They provide their investors with the following benefits:

  • Access to a wide range of industries and companies of varying market sizes
  • Acts as a cushion during market volatility
  • Helps in achieving long term financial goals
  • Reduces the time spent on monitoring a portfolio
  • Access to the global market

Want to continue the conversation?

Speak to our expert in

Leave your email below and we will assign a personal Relationship Manager to get in touch and start aligning your life goals