How Many Mutual Funds Should You Have in Your Portfolio? (5, 10 or What?)

Mutual Fund investing is more popular nowadays. Investors don’t have to watch the market regularly, no tension, just invest and professional managers will do the rest for you. In the Equity market, choosing the right mutual funds can impact your investing journey. So, it is very important to choose the right amount of funds for a healthy portfolio. Before starting, here we want to clarify that in this article, we will only talk about equity mutual funds, not other funds like debt, etc. If you are looking for how many equity mutual funds you should have, then this is the right place to know. So, let us begin.

When making a portfolio, everyone suggests diversification, based on the investor’s specific financial goals. Investing in equity mutual funds typically aligns with specific investor goals centered around long-term capital appreciation. But some investors fill their portfolio with multiple mutual funds to diversify, which leads to over-diversification.

What Professionals Say?

Shankar Nath mentioned that he hold 4 equity mutual funds in his portfolio. One Large Cap, One Mid Cap, One Small Cap, and One International fund. He has been an active investor for 20 years.

On an Upsurge podcast, Gajendra Kothari suggest to not keep more than 3 to 4 mutual funds. On another podcast, he mentioned to not keep more than 5 funds. He has more than 15 years of experience encompassing both Indian and international capital markets.

Pratik Oswal answered to have 3 to 4 equity mutual funds in a portfolio. He is the Head of Passive Funds at Motilal Oswal AMC. Pratik also mentioned that many young investors make the mistake of investing in 10, 15, 20, or 25 mutual funds.

Finology Ticker suggest 3 maximum funds in a portfolio. Ticker is a tool by Finology for company analysis and equity research that helps investors make informed stock decisions.

According to Value Research, consider reducing the number of funds to 5, allocating around 20% to each. They says: Focus on fewer, quality funds.

So, here we found that no one is suggesting more than 5 funds.

You can just imagine which will give more returns? A Portfolio with 3 Funds with 20.12% CAGR or a Portfolio with 10 Funds with 20.12% CAGR? Of course, if you include expense ratio and other charges, the Portfolio with 10 Funds will charge more fees. Also, a portfolio with less funds also increases the rate of return. So, a Portfolio with 3 Equity Mutual Funds is the clear winner here. However, you can add up to 5 equity funds to well-diversity the portfolio.

How Many Mutual Funds Should You Have?

On the internet, you may find upto 10 mutual fund recommendations in a portfolio. But they also included Debt, Hybrid, Tax Saver, and International funds. Here, we are only focusing on “How many Equity mutual funds should you have in your portfolio.” It is ok to have upto 10 mutual funds including Equity, Debt, Hybrid, etc. But Generally, it is recommended to have 3 to 5 equity mutual funds in a portfolio.

If you trust in your investment decisions, and choose quality funds, also if you expect higher returns, then equity 3 mutual funds are enough. On the other hand, if you want a stable return, want to diversify more, want to make your portfolio less volatile, then maximum equity 5 funds are enough.

Mutual Funds are already diversified across different stocks. If you hold 20-30 stocks in your stock portfolio, then it is acceptable. But, holding 20-30 funds might be a bit excessive.

For example, a 3 funds portfolio may include:

• Large Cap Fund
• Mid Cap Fund
• Small Cap Fund

A 5 funds portfolio may include:

• Large Cap Fund
• Mid Cap Fund
• Small Cap Fund
• Sectional/Thematic Fund
• Momentum, Alpha or Value Strategy Index Fund

Suppose you want to invest in Large Cap and Midcap funds, then instead of choosing two different funds, you can choose a Large and Midcap fund, which includes Large and Mid size companies. In this way, you will pay a lower expense ratio and keep the minimum number of funds in your portfolio.

Here are few tips to how to not add too much mutual funds in your portfolio:

• Avoid investing on NFO.
• Don’t watch the market everyday.
• Remember your decisions when you invested.
• Avoid being influenced by unregistered finfluencers (like YouTubers and Instagrammers).
• Trust and be confident on your investment decisions. If you are not confident with your invested mutual funds, this indicate that you have invested without proper research and analysis.

During the research conducted before writing this article, we found some investors who had filled their portfolios with 20-30 equity funds, which is not recommended. This way, they may even struggle to beat the market index Nifty 50. For those who are investing in 20-30 mutual funds, they can switch to a Nifty 50 Index fund. Because investing in too many mutual equity funds will not only lower your returns, but also charge a higher expense ratio.

Should You Have Only 1 Mutual Fund in Your Portfolio?

No, you should not hold just 1 fund, instead keep at least 3 funds in your portfolio. However, if you still want to invest in only one mutual fund, then consider a Large Cap, or Nifty 50 Index fund. In this way, you will minimize the risk. Also, don’t put all the money in a Sectoral/thematic fund. Yes, if you are investing in only one fund, then make sure it is not a sectoral fund. It may negatively impact your portfolio in certain market conditions, as sectoral funds are considered very risky investments. Only consider sectoral funds if you have already 3 other funds in your equity mutual fund portfolio.

FAQs

Remember, make investing simple, not complicated. Because investing is a long journey and therefore less is more. We hope now you got the answer on how many mutual funds should you have in your portfolio. Let us know how many mutual funds do you own, what is your view?