Which of the following funds provides diversification between the main asset classes?

• A. A deposit fund, which invests in deposits with a wide range of banks.
• B. An equity fund investing in a mix of European and international equities.
• C. A managed fund investing in a mix of shares, bonds and property.
• D. A bond fund investing in a mix of bonds issued by large international companies.

Answer: (C)

Diversification across asset classes helps reduce risk by spreading investments across different kinds of assets that respond differently to market conditions. The main asset classes include cash, equities, fixed income, and property. A fund that mixes shares, bonds and property spans several of these classes, so its performance isn’t tied to just one type of asset. When one class underperforms, the others can help cushion the overall return, providing a smoother balance over time.

The other options stay within a single asset class: a deposits fund is primarily cash, an equity fund focuses on stocks, and a bond fund concentrates on bonds. They don’t offer diversification across the major asset classes.