A common mistake mutual fund investors make can be fixed through five simple steps
Dec 26, 2019, 13:23 IST
Proponents of passive investing will argue that just buying a Nifty 50 index fund and liquid fund is good enough. But it is good to diversify your investments across securities, asset classes, and types of stocks based on risk appetite, saving needs, and future goals.
However, quite often, small investors find their money parked in one too many mutual funds.
What is the optimal number of mutual funds to have in your investment portfolio?
A five-fund portfolio that takes care of all your needs, according to investment advisory firm Kuvera. Over time, it will become incredibly hard to manage and rebalance your portfolio and make any changes to it.
New investors should be aware of this and take proactive steps to not let their portfolios grow to too many funds.
The only argument to add multiple funds is if there is minimal stock overlap – so invest in a Nifty 50 fund, a Nifty Next 50 fund, a value biased fund, an international fund and one debt fund. This is the ideal mix according to Kuvera.
Just following the below rules will bring down the number of funds in your portfolio to 4-8 funds:
1. Only one scheme per Equity sub-category (e.g one large cap scheme).
2. If you are investing in market cap schemes (large, small, mid etc) then don't have a multicap scheme.
3. Avoid investing in Sector or Thematic schemes. Sector outperformance is notably hard to predict.
4. Invest in one fixed income scheme (debt or liquid). That's right, just one liquid scheme is enough. Take risk on the equity side of the portfolio.
5. If you have both equity and debt schemes then don't have balanced and hybrid schemes.
Gaurav Rastogi is the CEO and co-founder of Kuvera.in, a direct mutual fund investing platform
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However, quite often, small investors find their money parked in one too many mutual funds.
What is the optimal number of mutual funds to have in your investment portfolio?
A five-fund portfolio that takes care of all your needs, according to investment advisory firm Kuvera. Over time, it will become incredibly hard to manage and rebalance your portfolio and make any changes to it.
New investors should be aware of this and take proactive steps to not let their portfolios grow to too many funds.
The only argument to add multiple funds is if there is minimal stock overlap – so invest in a Nifty 50 fund, a Nifty Next 50 fund, a value biased fund, an international fund and one debt fund. This is the ideal mix according to Kuvera.
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Just following the below rules will bring down the number of funds in your portfolio to 4-8 funds:
1. Only one scheme per Equity sub-category (e.g one large cap scheme).
2. If you are investing in market cap schemes (large, small, mid etc) then don't have a multicap scheme.
3. Avoid investing in Sector or Thematic schemes. Sector outperformance is notably hard to predict.
4. Invest in one fixed income scheme (debt or liquid). That's right, just one liquid scheme is enough. Take risk on the equity side of the portfolio.
5. If you have both equity and debt schemes then don't have balanced and hybrid schemes.
Gaurav Rastogi is the CEO and co-founder of Kuvera.in, a direct mutual fund investing platform
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