What is the main benefit of diversifying an investment portfolio?

Explanation: Diversification means spreading investments across different asset classes, sectors or companies, such as equity, debt and gold. When one investment performs poorly, others may perform well, which lowers the overall risk of the portfolio. However, diversification only removes company-specific (unsystematic) risk. It cannot remove market-wide (systematic) risk such as a recession, and it does not guarantee returns or prevent losses. This principle is also why NPS lets subscribers split money across equity, corporate bonds and government securities.