Seema: Hi Kapil, I’ve been investing in mutual funds for a while now, and with all these new campaigns, I feel like I should add more funds to my portfolio. What do you think?
Kapil: Hi Seema! It’s great that you’re interested in mutual funds, but adding more funds isn’t always the best approach. Let me ask you: How many funds do you have in your portfolio right now?
Seema: Hmm, I think I have about 14. Is that too many?
Kapil: Well, it depends on your experience and portfolio size, but 14 sounds like it might be too many. Think of your portfolio like a cricket team. Imagine having 11 Best players on the field—brilliant right? Naaaah……… You will lack the balance and coordination. Similarly, having too many mutual funds can dilute your returns and make tracking your portfolio more difficult.
Seema: Oh, that’s an interesting analogy. So how many funds should I ideally have?
Kapil: For someone new to investing—lets say less than five years of experience—four to five funds are usually enough. For seasoned investors with more than five years of experience, around 8 funds is reasonable. And for those with portfolios in crores, they might need more than 10, but only if each fund offers meaningful diversification.
Seema: I see. So, how do I decide which funds to keep and which to let go?
Kapil: Start by evaluating each fund’s role in your portfolio. Here’s a simple checklist:
- Give equity funds time: Hold them for at least three years before judging their performance.
- Avoid sectoral and thematic funds: These are risky and often cyclical. Most investors jump in after the best phase has passed.They can be used as a satellite fund to your portfolio provided you understand that sector well
- Focus on high-quality funds: Look for funds with not much expenses and consistent performance over more than 5 plus years
- Eliminate insignificant funds: If a fund contributes less than 5% to your portfolio, it’s probably not making a meaningful impact.
Seema: That makes sense. So, it’s better to have fewer but high-quality funds that align with my goals?
Kapil: Exactly! A lean, purposeful portfolio is like a well-balanced cricket team—each player or fund has a role to play, ensuring maximum efficiency and peace of mind.
Seema: Thanks, Kapil! I’ll review my portfolio with this approach and start decluttering.
Kapil: Great! Let me know if you need help with the process. Investing is never about the quantity of financial products you own but the quality and alignment it serves with your own goals. Remember keeping it simple always works.
Simplified Money Talks 