How many funds?

Trending mutual fund mania. and all investors heard this "Don't put all your eggs in one basket".  Peoples are doing more and more sips and adding more funds. they know diversification is good. Our ancient teach us two is better than one, three is better than two, ten is better than nine, and what about 20 or 30. yes, some peoples are not hesitating to invest in 20 to 30 too. One of my new clients comes with his mutual fund portfolio. he had 26 mutual funds in his bucket. He raises the same question, which is my blog heading now.

Okay, now understand how the mutual fund is built ? after that, we will be diced diversification will work or not.

1. On an average in one mutual fund portfolio bucket investing in  30 to 40 company shares. it means if you are investing in 10 mutual funds then you are investing in an average 400 company. Which is theoretically and practically over diversification scenario, which eaten your investment purpose " THE GROWTH".

2. If you visit their portfolio and compare all investment stocks, you found that. 5 to 10 companies are the same in all portfolios. for an example 1 HDFC bank, 2 HDFC, 3 IndusInd bank 4 Reliance, etc.

3. In Nifty 50 there are only 50 companies, and in Sensex, there are 30.

it means you have 10 mutual funds portfolio, which is similar to 8 Nifty and 13 Sensex. Do you think it makes sense? NEVER.

An ideal investor should invest in 3 to 4 funds max if interested in thematic funds than 5 or 6 is the good number.

Now you decide what to do? Remember, Mutual fund themselves encapsulate diversified. adding more funds archive little. 

By , 
S PRASAD RAO.
IFA