When It Comes to Mutual Funds, More Isn’t Always Better
In the world of mutual funds, quantity does not equal quality. Owning too many funds often leads to overlap and clutter, not real diversification.
It’s better to focus on the few that anchor your portfolio — your lead cast — with others in supporting roles.
Many equity funds within the same category (for instance, large-cap funds) hold the same top stocks. So, adding more of them doesn’t improve returns; it only mirrors existing exposure.
Goal-Based Investing
Different investment goals call for different fund types:
| Investment Horizon | Fund Type | Recommended No. of Funds |
|---|---|---|
| Long-term goals | Equity Funds | 8–10 |
| Medium-term goals | Hybrid Funds | 8–10 |
| Short-term goals | Debt Funds | 8–10 |
Flexi-cap funds:
Can dynamically move across market-cap segments, providing agility and better asset allocation.
Balanced Advantage Funds (BAFs):
Blend of equity and debt — ideal for moderate risk takers seeking stability with growth potential.
Multi-asset funds:
Offer a mix of equity, debt, and gold, bringing natural diversification within a single scheme.
Tips for Smarter Diversification
Avoid overlaps: Before adding a new fund, check its top holdings — available in the fund’s factsheet.
Mix investing styles: Combine growth-oriented and value-driven funds for balance.
Diversify across asset classes: Choose categories with low correlation (e.g., equity vs. debt).
Include an international fund: Helps reduce home-country bias and capture global opportunities.
Avoid sector/thematic funds: They require precise entry and exit timing, which is difficult to get right.
Review periodically: A well-curated core portfolio usually needs 8–10 funds — no more.
Building Your Core and Satellite Portfolio
A well-diversified structure often looks like this:
Core portfolio: Your long-term, stable growth engine — comprising broad-based diversified equity and hybrid funds.
Satellite portfolio: A small allocation to high-conviction or thematic ideas, used selectively for tactical plays.
Remember — you can’t truly diversify if your funds own similar stocks or follow the same strategy. Real diversification comes from distinct asset classes and styles, not sheer numbers.
For deeper insights on portfolio construction, fund overlap, and disciplined diversification, read expert perspectives from Ranjit Jha (CEO) — a thought leader in goal-based wealth planning and investment strategy.
To build a well-balanced mutual fund portfolio aligned with your goals, connect with Rurash Financials — specialists in asset allocation, wealth advisory, and long-term financial planning.