A diversified equity scheme:
A diversified equity scheme spreads its money across many companies and sectors instead of concentrating on one sector or theme. Under SEBI's scheme categories, typical diversified categories are large cap (at least 80% in the top 100 companies), large and mid cap, multi cap, flexi cap, mid cap, small cap and ELSS. Sectoral and thematic funds (at least 80% in one sector or theme) are concentrated, not diversified. Points to explain to investors: - Equity returns are not guaranteed and can be negative in the short term; these schemes suit goals that are at least five years away. - Diversification reduces company-specific risk but not market risk. - Large-cap schemes are usually less volatile than mid- and small-cap schemes. - ELSS gives a Section 80C deduction (old tax regime) with a three-year lock-in. - A SIP spreads purchases over time and averages the cost.