Simple diversification can provide good returns with low volatility. A broadly diversified portfolio across sectors, capitalisation and style is guaranteed never to be the best in any one year-but it will also never be the worst. Such a portfolio will show fewer negative years than any concentrated portfolio.

Investors seeking long-term financial success should own a broadly diversified portfolio consisting of multiple asset classes. To be a candidate for a diversified portfolio, an asset class should represent a significant segment of India's corporate wealth. By diversifying, you'll avoid extremes, and find a happy medium.

On one hand, the concentrated equity funds - Birla Advantage, Magnum Multiplier Plus and Magnum Equity - were among the top gainers of 1999, up over 200 per cent but were severely hit in 2000 with a fall between 33-50 per cent. While, the diversified ones - Kothari Pioneer Bluechip, Zurich India Capital Builder and Sundaram Growth - gained anywhere between 60-180 per cent in 1999 and lost much less in the range of 13-21 per cent in 2000.

Keep in mind that in any given year, your portfolio's returns may significantly differ from benchmarks such as the Sensex, or S&P CNX 500.

However, over the long-term, you are more likely to meet your goals by adhering to a consistent strategy of diversification. It is tempting to concentrate in the face of short-term outperformance. But if we heed the lessons of history, a diversified portfolio makes as much sense as ever. Our selection among equity funds includes less volatile and well-diversified funds that avoid sector concentration.

KP Bluechip is a diversified large cap equity fund. It has given an annualised return of 27.65 per cent in its nearly seven year tenure. This return is all the more appreciable, since most of this period has seen a bearish market as also the onslaught of the IPO rally of 1994 going bust.

Starting afresh on its open ending in January 1997, the fund had a clear strategy to invest in bluechip stocks that earn more than the cost of capital and sustain it with good management. In a selectively rising market, the fund has been overweight on technology, pharmaceutical and consumer sectors with the troika accounting for half of the portfolio and technology being a third of the portfolio in 2000. The fund has been actively managed while spreading assets across a lot of names. This has provided greater stability in recent wild times.

Sundaram Growth follows a long-term approach to investing with an investment horizon of 18-24 months. The fund's investment strategy centers on negotiating pitfalls rather than achieving phenomenal success. To guard its small asset base, it stuck to safe haven of debt instruments in the turbulent market of 1998.

While getting gradually invested, the fund has never gone overboard on any stock and largely retained a diversified flavor with a bend towards sectors with growth prospects. Technology stocks accounted for 25 per cent of the corpus in December 2000. The fund has posted a return of 17.4 per cent since launch, which pales when compared to its aggressive peers. Nevertheless, this fund has treaded a cautious path with a diversified portfolio while others took concentrated bets in select sectors.

Zurich India Capital Builder invests in fundamentally sound companies with a track record of high profitability ratios and surplus cash generation. However, it lays emphasis on the stocks not being valued very aggressively.The fund aims a steady-above average return without assuming too many risks.

After losing heavily in the post-IPO boom, the prolonged restructuring helped the fund bounce back. While the fund's return since launch has been a meagre 2.5 per cent, that since its realignment by the second half of 1997 is a good 17.8 per cent. The fund was truly diversified till 1999 with a small exposure to IT (maximum of 13.5 per cent in January '99) for the reason of high valuations.However, since 2000, the fund has had a distinct preference for FMCG stocks.

The fund would invest in technology stocks, but at consider prices. ZICB's diversification paid off during 2000 with a loss of only 17 per cent. The fund is likely to deliver above average returns with greater stability. Other funds worth a closer look are Sun F&C Value and Tata Pure Equity.