Investors are buying equity funds as stock markets scale new highs. However, the smart lot is diversifying geographically by allocating money to fund of funds that invest overseas. Geographical diversification reduces risk and allows investors to benefit from growth in other parts of the global economy. Developed world equities, especially US stocks, have a low correlation with Indian stocks. Investing overseas offers exposure to businesses such as search engines, social networking portals, semiconductors and gold mining which are not available in the listed space in India. Investors should ideally begin with index funds and gradually build their portfolios with at least a five-year timeframe.