The Nifty 50 Index has long been a popular investment choice for Indian investors, delivering an annualised return of approximately 14.2% from 1999 to 2021, making it a strong option for long-term investments. 1
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However, in recent years, its growth has shown signs of moderation. In 2024, the Nifty 50 gained just 8.8%, making it one of the weaker performers among global markets due to slowed corporate earnings and foreign fund outflows. 2
Given these trends, a lot of investors are wondering—should they stick to a single index fund or start diversifying their portfolio? Let’s dive into the benefits of a broader investment approach.
First Priority – Risk Management
Before making any changes to your investment strategy, it is important to build a strong financial foundation. Here’s what you should focus on:
Emergency Fund
Set aside 6-9 months of living expenses in liquid investments like arbitrage funds. This acts as a financial safety net during unexpected situations.
Insurance Protection
Ensure you have adequate life and health insurance to protect your wealth and future income.
Credit Profile
If you haven’t already, consider building a good credit score by responsibly using credit cards or small loans.
Should You Diversify?
If you are comfortable with market fluctuations and have a long-term outlook, diversification can help reduce risks and optimise returns. Here’s how:
Expand Your Portfolio
Actively Managed Equity Funds – Some funds have the potential to outperform Nifty 50 over time.
Fixed-Income Investments – Adding bonds or debt funds can bring stability to your portfolio.
Gold Investments – Gold can act as a hedge against economic downturns and inflation.
Systematic Investment Approach
Start SIPs in different asset classes aligned with your future goals.
Increase investments as your salary grows.
Stay disciplined and invest through market ups and downs.
Final Thoughts
While your existing investment strategy is solid, diversifying across multiple asset classes can help you manage risks better and optimize returns. Consulting a financial advisor can further refine your plan based on your financial goals and risk tolerance.
Remember, successful investing is not just about growing wealth but also protecting it for a secure financial future.
