Many investors consider adding another mutual fund even if they already have 3 to 5 SIPs running, believing that owning more funds automatically leads to better returns and diversification. However, experts say the number of SIPs matters far less than whether each fund serves a distinct purpose in the portfolio.
According to Aditya Agarwal, Co-Founder, Wealthy.in, “If an investor already has 3-5 SIPs, the real question isn’t whether to add another fund, but whether each fund in the portfolio is serving a distinct purpose.”
Let’s take a look at the key checks investors need to consider.
Every SIP should have a defined role
Agarwal advises investors to ensure each SIP has a clear purpose. A portfolio of three to five SIPs works well only when every fund plays a different role, such as:
- A large-cap or flexi-cap fund for stability
- A mid-cap or small-cap fund for growth
- A hybrid, debt, international or gold fund for diversification
“If two SIPs are both large-cap funds, the investor may simply be duplicating exposure rather than diversifying it,” he said.
Different AMCs don’t always mean better diversification
Holding funds from different asset management companies (AMCs) does not automatically result in a diversified portfolio.
“A large-cap fund and a flexi-cap fund from different AMCs can still hold the same top stocks, such as Reliance Industries, HDFC Bank, ICICI Bank, Infosys and Bharti Airtel, in similar weights,” Agarwal said.
He recommends reviewing the portfolio if two funds overlap by 50% to 60% in holdings, as investors may be paying for similar exposure twice.
Portfolio risk should match your financial goals
Market rallies often tempt investors to add more mid-cap and small-cap funds without reassessing their overall asset allocation. As equity exposure increases, the portfolio can become riskier than originally intended.
“An investor with a five-year goal, such as saving for a house down payment, should not discover too late that 70% of their SIP corpus is sitting in high-volatility mid- and small-cap funds,” Agarwal said.
He suggests asking a simple question. “A practical rule is to ask: if markets fall 25–30%, will this goal still remain on track? If the answer is no, the SIP mix is too aggressive for that goal,” he added.
Too many small SIPs can add complexity
“Investors often keep adding SIPs in ₹1,000- ₹2,000 lots because it feels diversified. But very small SIPs spread across too many funds create complexity without materially improving outcomes,” Agarwal said.
For example, a ₹25,000 monthly SIP split equally across five funds can work well if each fund serves a distinct purpose. However, spreading the same amount across 10 funds of ₹2,500 each often leads to portfolio overlap, making performance tracking more cumbersome and offering little diversification benefit.
Measure success at the portfolio level
Instead of focusing on the returns of individual SIPs, investors should assess whether the overall portfolio is helping them achieve their financial goals.
“The real question is whether the combined portfolio is delivering what it was supposed to do: wealth creation, tax efficiency and progress towards financial goals with acceptable volatility,” Agarwal said.
He recommends reviewing the portfolio every six to twelve months to ensure it remains aligned with investment objectives and risk tolerance.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
About the Author
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance.
She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram.
Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.