What is The Optimal Number of Funds You Should Hold in Your Portfolio?

04 Aug 2022

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Too many MF schemes in your Portfolio may not be a good Idea – Here’s why

1. Over diversification

Having multiple funds under same category of funds does not help in diversification. Each Mutual fund contains 40-60 underlying securities on average which is already quite diversified.

2. Difficult to Track

It is a difficult task to track each of these funds and conduct review of each & every fund in your portfolio

3. Higher Expense Ratio

Your average expense ratio might be higher due to having multiple funds as compared to picking limited number of funds with low expense ratio.

Here is a list of measure in case you have a cluttered portfolio.

1. Revisit Financial Goals & decide your asset allocation strategy

Periodically assess financial goals and risk appetite to determine your asset allocation strategy & remove funds which are not in-line with the strategy.

2. Figure out underperforming funds

Capital Markets are cyclical with different investment strategies faring well in different market cycles. Funds which are consistently lagging in terms of performance should be weeded out.

3. Periodically evaluate your MF Portfolio

Once you have decluttered your portfolio, make sure you review it at least once a year so as to check for any deviations from the strategy

While there is no correct exact number of funds one should hold in his portfolio, a maximum of 8 funds (+/-2) may be considered optimal. There is nothing wrong in investing in more or less MF schemes than the said number, however one’s decision should be well informed after taking into consideration their investing objective, tenure & risk levels.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.

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    The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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