There is a common saying in investments - 'Don't put all your eggs in one basket', which basically means 'don't invest all your money in one instrument.' But the real question remains - how diversified is diversification?
mutual fund are one kind of those investment which diversify your  folio in field which u are interested or as per your return goal. As mutual fund includes sectors such as:-

  • Banking
  • Equity
  • Public sector
  • Debts
  • Gold
  • Real estate
  • International investment
  • Derivatives 

Even mutual fund has given u option for investing money in different way as per your income and goal. They are :-                                                          

  • Index fund.
  • Fixed maturity plan(FMP)
  • Monthly income plan (systematic investment plan SIP)
  • Capital protection oriented schemes.