When Kangana Ranaut filed her nomination for the 2024 Lok Sabha elections from Himachal Pradesh’s Mandi parliamentary constituency last week, she declared having 50 LIC policies as part of her movable and immovable assets worth Rs 90 crore. It is generally unusual for a person to hold so many policies from one asset class, which has surely raised people’s eyebrows.

In her affidavit, she declared that her movable assets were worth Rs 29.73 crore, and her immovable assets totalled around Rs 63 crore. The 37-year-old actress, a Padma Shri awardee known for her roles in movies such as “Tanu Weds Manu,” “Gangster,” and “Once Upon a Time in Mumbai,” is contesting the polls for the first time on a Bharatiya Janata Party (BJP) ticket.

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Although asset diversification is a common practice in the stock market to minimise risks, has she gone overboard by buying over four dozen LIC policies, and was that the right decision?

Shweta Jain, founder of Investography Pvt. Ltd, an investment firm, says, “Having property, gold, and silver as investments and LIC policies mean she’s investing in safe assets. While it may be ok for Kangana, most of us don’t have that luxury; we want our money to grow. Mutual funds would have been great here; she doesn’t have to have these many policies.”  

Amol Joshi, founder of Plan Rupee, a financial planning and investment firm, stresses that one term plan, a health cover, four to six mutual fund schemes across asset classes and not more than two bank accounts should be more than enough for an individual investor. 

So, what things should be considered for diversification and the overall approach to the portfolio?

Thumb Rule for Diversification

According to Joshi, “Diversification does not mean one should invest in asset classes equally. The portfolio will depend on the investor’s investment horizon, financial goals and risk appetite. However, the thumb rule says fixed income (debt) and equity should be the core, and gold and international equity could be satellite parts of your portfolio.”

To support his point, Joshi explains, “An equity mutual fund scheme invests anywhere between 30 and 100 shares. So, investing in 2 to 3 MF schemes will give sufficient diversification. Investing in 15 or 20 schemes is excessive and adds no extra value to the portfolio.”

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Benefit of Diversification

Experts stress that proper diversification of assets can hold the portfolio steady in times of volatility and other adverse market conditions. This is because all the assets in the portfolio do not follow a similar business cycle. Some assets may perform well in a particular period, while others may not. So, diversification keeps the boat steady by compensating the loss of one asset with another.

Why Not to Go Overboard

It is also vital not to go overboard and over-diversify, as it adds no additional value to the portfolio. For example, one can add gold to a mix of equity and debt instruments because each asset class’s risk and growth trajectory differs. However, the allocation percentage in each asset class may vary from one individual to another, depending on their investment horizon, risk appetite, and financial goals. Finally, if you properly diversify your portfolio, you will have little problem managing it during market turmoil.