How Many Mutual Funds Should I Own?

You open your mutual fund statement and notice 15 different funds listed. You may feel proud of your “diversified” portfolio. But have you really spread your risk wisely, or are you overdoing it? How do you know how much to invest in mutual funds tomaintain a balanced portfolio that works for you?

The truth is, owning more funds doesn’t always help. In fact, too many funds can make your portfolio messy, confuse your strategy, and even limit your gains.

So, are you asking yourself, ‘How many mutual funds should I have?’ Let’s find the right balance together.

Why Should You Diversify Your Mutual Fund Investment?

Diversification is all about spreading risk. If you put all your money into a single company, any trouble that company faces directly affects your investment. Mutual funds solve this problem by allowing you to invest in multiple companies at once.

Equity mutual funds, for instance, generally invest in 50 to 100 companies at a time. That means when you invest in one fund, you’re already diversified across industries and sectors. In other words, your portfolio is doing heavy lifting for you.

When Does Diversification Go Too Far?

So, you know that you must spread your investments across multiple funds, but how do you know if it’s actually helping or if it’s too much? Here are the signs that diversification might be going too far:

• Duplication and diluted gains

If you own multiple funds in the same category, like large-cap funds, they often invest in many of the same companies. This means your portfolio isn’t truly diversified, because many of your investments are essentially in similar places.

Because of this overlap, even if one of your funds performs exceptionally well, its impact on your overall portfolio may be small. The returns get “diluted” across all the similar funds you own, limiting the benefit of having that high-performing fund.

• Complexity and confusion

Owning too many funds can make it difficult to track performance, manage risk, and stick to your financial goals. More statements, more numbers, and more decisions can turn what should be a simple investment plan into a stressful juggling act.

How Many Mutual Funds Should I Have?

To answer ‘How many mutual funds should I invest in,’ let’s consider the following:

Tips for Managing Your Portfolio

Once you know how much to invest in mutual funds categorically, the next step is to balance your portfolio. Here’s how you can do it:

• Review your investments regularly and avoid unnecessary overlap.
• If your portfolio has too many funds, consider a gradual cleanup over a few months.
• Trim duplicates or low-performing schemes first.
• Be aware that existing funds can have tax implications, so plan carefully.
• Assess how much to invest in mutual funds in each category according to your risk tolerance.
• Focus on quality and balance across categories, not quantity.

Balance Your Mutual Fund Portfolio Today

A small, well-chosen number - around 8 (give or take 2) - spread across categories is usually enough for most investors. Focus on informed choices rather than sheer quantity. Matching your investments with your risk profile and understanding each fund type can help you build a portfolio that works for you.

To make this process easier, you can download the Tata Capital Moneyfy app or use the website to track, review, and manage all your mutual fund investments. It helps you take control and keep your portfolio balanced at all times.