SIMPLY 3 FINSERV PRIVATE LIMITED [CIN: U67190PB2022PTC056099] is an AMFI Registered Mutual Fund Distributors & SIF Distributor (ARN-249158)
Lokesh Malhotra [ARN-158405] | AMFI Registered Mutual Fund Distributor
More Is Not Always Better
Does holding more mutual fund schemes automatically mean better diversification? Not necessarily.
Many investors believe that investing in a larger number of mutual fund schemes can help spread risk. While diversification is an important investment principle, simply increasing the number of schemes does not necessarily provide greater diversification.
The reason is that different mutual fund schemes may invest in many of the same companies, sectors or market segments.
A recent article highlighted by Café Mutual points out that investors may hold several mutual fund schemes and still have significant concentration in similar underlying investments.
So, What Is the Right Number?
There is no universal number of mutual fund schemes that is suitable for every investor.
The number of schemes held may depend on factors such as investment objectives, risk profile, investment horizon and the types of investments being considered.
Rather than simply counting schemes, investors may find it useful to understand what each scheme adds to their existing investments.
For example, holding five different equity schemes does not necessarily mean having five completely different sets of investments. If several schemes have significant common holdings, adding another similar scheme may increase the number of schemes without meaningfully increasing diversification.
Diversification or Duplication?
Before investing in another mutual fund scheme, an investor can consider:
- What exposure does the scheme provide?
- Does it have significant common holdings with existing schemes?
- Does it invest in a different category or asset class?
- Does it serve a distinct investment objective?
The distinction is important.
More schemes can mean more diversification—but they can also mean more duplication.
A large number of mutual fund schemes therefore does not automatically indicate better diversification.
Look Beyond the Number
Investors may find it more useful to understand their overall mutual fund investments rather than simply counting the number of schemes they hold.
Diversification is about spreading exposure appropriately. It is not about collecting a larger number of scheme names.
So, instead of asking:
“How many mutual funds should I hold?”
A more meaningful question could be:
“Does each mutual fund I hold add something meaningful?”
The objective need not be to hold the maximum number of schemes. It is to understand the investments being held and recognise unnecessary duplication.
More mutual funds do not automatically mean more diversification. Sometimes, fewer schemes with genuinely different underlying exposures may provide meaningful diversification.
This article is intended solely for investor education and general awareness. It should not be construed as investment advice, recommendation, solicitation, or assurance of returns. Mutual Fund investments are subject to market risks. Investors are requested to read all scheme-related documents carefully before investing.
Follow us on:
