Don't Put All Your Money in One Fund

Diversifying investments is important, but over-diversification can make it difficult to track and manage your portfolio. Many investors add too many funds, thinking it will improve diversification, but that’s not always the case.

How Many Funds Should You Have?

Having more than one fund is necessary. Relying on a single fund means depending entirely on one fund manager’s strategy, which carries risks. Even the best fund managers can make mistakes.

However, holding too many funds doesn’t mean better diversification. A portfolio with multiple overlapping funds isn't truly diverse. Ideally, 3–4 funds are enough, as most funds in the same category invest in similar stocks.

Should You Choose Funds from the Same or Different Categories?
It’s better to invest in funds from different categories. This spreads risk across various market segments, as different types of stocks perform well at different times.

The Four Key Fund Categories:

ELSS Fund – A great starting point for investors. It helps save taxes and acts as a multi-cap fund. Aggressive Hybrid Fund – Previously called Balanced Funds, these invest at least 25% in debt, adding diversification.

Multi-Cap Fund – Invests across companies of all sizes and sectors, allowing flexibility.

Large & Mid-Cap Fund – Focuses on India's top 200 companies, balancing stable large-cap stocks with growing mid-cap companies.

Key Takeaway:

A well-diversified portfolio doesn’t need too many funds. Simply choose 3–4 categories and invest in one fund from each to maintain a balanced and manageable portfolio.