To simplify things, let’s take local mutual fund as an example.
Funds classified as “Mixed Asset” or “Balanced” type are essentially diversification in terms of asset class and sectors. See the excerpt from OSK-UOB Smart Balanced Fund. Asset class here consists of Cash/Deposits, Real Estate Investment Trust (REIT), Bonds, Equities and derivatives. In terms of sectors diversification, there’s construction, consumer products, industrial products, and trading/services.
Equity Fund, as the name suggests, mostly consist of shares and derivatives only – hence, only sector diversification, not so much on asset class diversification. From OSK-UOB Smart Treasure Fund Fact Sheet, observe there are various sectors where the money is invested.
Fixed Income Fund focuses primarily on fixed income securities – mostly on Government or Corporate Bonds. This is mainly asset class diversification – bonds having the lion’s share of the pie chart per fund investment objective, followed by 3 equities sector and derivatives.
A more advanced type of diversification can refer to geographic diversification. It often means investing in foreign assets – most commonly, international share market. However, speaking from experience, there is a limitation on how much you can diversify investments, especially in non-local scenario due to limited budget. On top of that, there’s currency exchange risk involved.