Indians are taking to mutual funds as ducks take to water. The amount flowing into mutual funds only through the Systematic Investment Plan (SIP) route is rising every month as more and more people are joining the bandwagon to beat inflation and yet enjoy the relative safety of professionals managing their funds.
Neither too few, nor too many funds
Investing in too few funds as well as too many is detrimental to the investor. Every investment expert strongly suggests that none should put all their investment in one mutual fund. The logic: it would be too risky to put all your money in one basket.
To mitigate risk, investment experts advise that one should diversify the assets one invests in. In any portfolio, equity funds, debt funds or hybrid funds – those which invest in both equity and debt instruments to avoid volatility – should exist.
But the question still remains, how many funds should one choose?
Types of funds
Equity funds are further divided into large cap funds, mid cap funds and small cap funds, or a mix of these categories. Equity funds provide higher returns, and are, therefore, preferred by most investors.
As the names indicates, large cap funds invest most of their money in large caps stocks, mid cap funds and small cap funds do the same with mid cap and small cap stocks. Each category has its own utility.
A maximum of 2 or 3 large cap funds is suggested for an individual by experts. Anything more than that will mean possibilities of a lot of overlap.
When it comes to mid cap funds, 2 is enough. The same applies to small cap funds as well. Having more than 2 in mid and small cap funds could increase risk, experts think.
Debt funds provide stability to a portfolio. Not more than 1 to 2, recommends investment strategist Nilanjan Dey, director, Wishlist Capital.
Maximum 9 or 10 funds
Sectoral or thematic funds are becoming extremely popular. These usually follow a particular sector like infrastructure, pharma or technology opportunities. Dey says one should put one’s money in such a fund only if one is familiar with the possibilities in that sector.
Many experts feel that a portfolio with 9 or 10 funds is ideal. One can select about 5/6 funds for long term goals. The rest four can be equally divided for short-term and medium-term objectives.
The number of mutual fund schemes one should invest in is a constantly debatable topic. There is hardly unanimity among experts on this matter. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
