How Many Funds You Should Have?

Mutual Funds are one of the best investment options available in current times, as they allow us to diversify our investments in different asset classes and with industry experts managing our hard-earned money on our behalf.

But when we are investing in mutual funds the most common question that comes to our mind as an investor is how many funds should I have in my Mutual Fund Portfolio? But before moving ahead must know this question,

Why We Have Multiple Funds In Our Portfolio?

To answer this question, we need to find the cause of this question first.

This question arises because many investors want to do the following things with their money,

1. Want to Diversify adequately in different categories of funds
2. Do Not Want to Miss the Opportunity to Invest in a Good Performing Fund
3. Do Not Want to Eliminate the bad-performing fund with the hope that it will perform well in the future
4. Want to buy New Funds at Lower NAVs (Rs.10)
5. Want to buy as many funds as possible to avoid risk

These are the common thoughts and questions many investors have in their mind which leads to adding “n” number of funds in their portfolio.

But in the case of Investing the only thing you need to look at is for how long you are planning to invest your money and based on your risk profile which category of fund is best suitable for you.

Say, a middle-aged couple with a secured job can take a risk to earn better returns than Fixed Deposits and also understand how the Equity market works, then they can go ahead with any Midcap or Diversified Category of Equity Funds.

They don’t need to diversify their money more than this, like diversifying across large-cap, Flexi-cap, mid-cap, small-cap, or any sectoral funds altogether, which most people do.

This will give no extra benefit, however, such investors may try to play safe, but actually, they may lose the opportunity cost if they don’t realize what they are doing.

The Fund Manager always tries his best to diversify across sectors and market caps based on their valuations and fund objectives, so an investor doesn’t need to mix and match more than is required.

My Conclusion

I believe an investor should not have more than 5 funds based on their investment horizons and financial goal requirements. If anything goes beyond 5 then they must get it to a lesser number of funds if possible.

Over a long period, the number of funds may increase, but timely evaluation is very important to make sure any overlapping is not there across portfolios of different funds.

If you have any queries or want to discuss investing in Mutual Funds, You can click here to schedule a meeting with me.

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Also, Read our recent article on: Top 3 PSU Equity Funds In India