When it comes to mutual funds, more isn’t necessarily better. While diversification is essential, owning too many schemes can result in repeated exposure to the same stocks and unnecessary complexity. So, how many mutual funds are actually enough to build a well-balanced portfolio? Experts say the answer is surprisingly simple.
“If you’re just starting out with mutual funds, you really don’t need to go overboard. Three to six funds are more than enough,” suggests Sonam Srivastava, Founder of Wright Research, as each mutual fund already packs in 50 to 100 stocks, so mutual fund investors are already getting a good mix
Meanwhile, Divam Sharma, Co-founder & Fund Manager, Green Portfolio, said the right number depends on your investment goals, risk appetite and the need for diversification. Similar to Srivastava’s recommendation, he says “holding 4–6 well-chosen funds across different categories is generally sufficient to build a diversified portfolio”
The real issue isn’t a lack of variety, but actually ending up with too much of the same thing. For example, if you pick five large-cap funds, you’re probably just buying the same stocks again and again, which doesn’t help. This essentially makes the portfolio difficult to monitor while diluting the potential impact of high-conviction investments.
“A smarter way is to pick your funds with a bit of thought: maybe one large-cap for stability, one mid-cap for some growth, a small-cap for that extra kick, and if you want to play it safe, a debt fund as well,” says Srivastava.
This way, you cover different parts of the market, avoid unnecessary overlap, and your portfolio stays easy to track and manage. At the end of the day, it’s always better to focus on picking good funds rather than just adding more and more.
A balanced mutual fund portfolio can include:
- A large-cap fund to provide a stable foundation.
- A mid-cap fund for long-term growth potential.
- A small-cap fund to boost return prospects, while accepting higher risk.
- A debt fund to improve portfolio balance and cushion market volatility.
Adding to that, Sharma says, it is also essential to review the portfolio periodically to ensure it remains aligned with their long-term financial objectives.