Investors often add too many mutual funds to their portfolios—sometimes as many as 10 to 15 schemes—thinking that this will lead to the best diversification. However, this strategy can often result in mutual fund portfolio overlap, especially if the funds are all from the same category or managed by the same fund manager or fund company. Mutual fund portfolio overlap occurs when you have two or more schemes with similar investments.
High mutual fund overlap can be counterproductive to diversification. Some schemes might occupy space in your portfolio without providing any real value or benefit. This situation exposes your portfolio to concentration risks, leading to polarised results, as it may become heavily skewed toward certain stocks, markets, sectors, or investment styles. Additionally, it increases the workload for portfolio monitoring and rebalancing.
Mutual fund investments should be made according to your investment horizon and financial goals; they shouldn't be made ad hoc. Aim to own no more than 5 to 8 mutual funds across all categories, including debt, equity, and others. If you have a modest investment and a moderately risky profile, you may want to consider adding a scheme from each of the following categories: Only add multiple schemes within the same category if they follow different investment strategies or styles.
Collection
[
|
...
]