LESS CLUTTER, MORE GROWTH: HOW TO STRUCTURE YOUR MUTUAL FUND PORTFOLIO

Many investors believe holding more mutual fund schemes makes their money safer. A long list of funds may seem like good diversification. In reality, it often leads to duplication. A strong portfolio is built on purpose, not quantity. Each fund should have a clear role in meeting your financial goals—like team members with distinct positions working towards the same target.

- AJAY KUMAR YADAV

Asset allocation: Before selecting funds, set the foundation: how much to allocate to equity, debt, or hybrids? Equity drives growth, debt adds stability, and hybrids balance both. The right mix is like a house’s foundation, determining overall strength.

Less is more: Owning ten large-cap funds doesn’t ensure diversification. Many may hold the same top stocks, like Reliance Industries, HDFC Bank, and Infosys. True diversification comes from choosing 5~7 funds across categories. For instance, two large-cap funds with strong 5-year CAGR of 22% and 22.5% may overlap heavily, sharing nearly 60% of their top 10 stocks. Adding both doesn’t strengthen your portfolio—it just creates clutter.

Watch out for overlap: Overlap happens when several funds hold the same stocks or sectors, reducing diversification benefits. For example, if a mid-cap fund already has 25% in financials, adding another similar fund doubles that exposure. A better approach is to complement existing holdings—pair a financial-heavy fund with one focused on energy or infrastructure to lower concentration risk. The goal is for funds to complement, not duplicate, each other.