How Many Mutual Funds Should You Own?

Most retail portfolios accumulate funds rather than choose them — a new one each time something tops a leaderboard. The result is a dozen schemes holding substantially the same stocks.

Portfolio overlap

Two diversified Indian equity funds routinely share a large share of their holdings, because the pool of liquid large companies is finite. If your four equity funds all own the same top ten stocks, you hold one portfolio with four expense ratios and four sets of paperwork.

A workable structure

• One core equity holding — an index, large cap or flexi cap fund.
• Optionally one mid or small cap fund for higher growth potential.
• One debt fund matched to your nearest goal's horizon.
• Optionally a small satellite allocation to gold or a specific theme.

The real cost of too many

Every extra fund is another position to monitor, another set of capital gains to compute, and another temptation to tinker. Fewer, well-chosen funds are easier to hold through a downturn — which is the behaviour that actually determines your outcome.