Diversified funds are designed to mitigate risk through diversification, which is a strategy to invest in different asset classes or sectors within the market. By spreading investments across a wide range of assets, diversified funds aim to reduce the impact of poor performance of any single asset or sector on the overall portfolio. This can include a mix of domestic and international investments, various sectors, and different types of securities. Investors in diversified funds benefit from professional management, which aims to achieve optimal returns while balancing risk based on the fund's stated investment objectives.