When more isn't better: Building a balanced mutual fund portfolio

Experts suggest a structured, goal- and time-based approach with the right mix of equity, debt and hybrid funds

- Jash Kriplani

here are over 1,800 mutual fund schemes in India— and the number keeps rising as fund houses roll out new fund offers (NFOs) almost every month. But here's the real question: does owning more schemes really diversify your portfolio—or just make it harder to manage?

Ask if the fund adds value

Before adding another fund, check if it genuinely contributes to your portfolio. Several equity schemes within the same category—say, largecap—often hold the same top stocks. “Investors often mistake the number of funds for diversification,” says Nisreen Mamaji, certified financial planner (CFP) and founder, MoneyWorks Financial Services.

“When schemes within the same category hold similar stocks, you're not spreading risk — you're duplicating exposure. It’s better to own a few schemes that complement each other than to clutter your portfolio with overlapping folios,” he added.

Mamaji says most investors can get broad exposure with a few funds across large-, mid-, and small-cap categories, along with an international fund. Over-diversification, cautions Nishant Agarwal, managing partner and head-family office at ASK Wealth Advisors, can hurt returns. “Over-disifying can be counterproductive. Having multiple equity funds may lead to a situation wherein your portfolio mirrors the market itself. So, your portfolio is less likely to outperform benchmark indices,” he says.

Keep it simple