5 Steps To Reduce The Number of Funds In Your Portfolio

Investing in Mutual Funds for many investors leads to very low performances that are mainly due to the collection of funds in a portfolio rather than diversification.

Many investors try to chase the best performers and then they add new fund offers as well, which results in having more than 15-20 mutual funds in their portfolio.

So, if you are one of those who have more than 5-7 mutual funds in their portfolio then you can follow these 5 Steps to Reduce the number of funds in your Portfolio.

5 Steps To Reduce Funds In Portfolio

Completely exit the consistent Underperformers

Yes, start with the funds in your portfolio that are consistently underperforming its category as well as a benchmark. Remember, the short term underperformance should not be the parameter to exit. However, consistent underperformers should be completely exited from your portfolios.

Remove the Multiple Funds of Same Categories

If you are having multiple mutual funds of the same category then you need to avoid them, for long-term and consistent performance you should only have 2-3 multi-cap funds in your portfolio along with one mid or small-cap, contra or focused depending on your risk profile. You should not have 3 mid-cap, 4 small-cap funds in your portfolio. Avoid duplicates as they tend to invest mostly in the same set of stocks resulting in portfolio overlapping.

Sell The Sectoral Funds

Yes, investing in different sectoral or thematic funds are meant for short-term performances and require regular monitoring as well as your deep understanding of that sector and its future possibilities. If you are not much active in sector-specific performance it is suitable to sell the sectoral funds from your portfolio.

Cut the Tails

If you are having many funds with meager capital it is recommended to remove those funds from your portfolio and switch those amounts to the selected funds.

Focus On Your Strategy & Approach

For long-term investments and wealth creation, it is preferred to have your core portfolio holdings in multi-cap funds and few other strategies depending on your risk profile consisting of not more than 5-7 funds in your portfolio. By reducing the number of funds, your entire investments from such funds should be redirected into the selected 5-7 funds.

Hope these 5 steps to reduce the number of funds in your portfolio will help you in getting rid of the clutter and increase your portfolio performance.

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