Why shouldn't you have too many mutual funds in your portfolio? (2024)

FAQs

Why shouldn't you have too many mutual funds in your portfolio? ›

But while diversification is important, it doesn't mean that you keep adding new funds to your portfolio. Investing in too many funds, and justifying it as diversification, is redundant. Beyond a point, there are no additional (diversification) benefits available if you increase the number of funds in the portfolio.

Investors should strive to build a diversified portfolio of roughly 10 to 15 mutual funds encompassing a range of asset classes and investment techniques. Mid-cap equity mutual funds invest in businesses with medium market capitalizations to balance growth potential and risk.

High-risk mutual funds are those that invest in stocks or equity that have a higher risk of losing value. These funds are also known as equity funds or growth funds. They are designed for investors who are willing to take on more risk in exchange for the potential of higher returns.

Financial planners say it is difficult to put a cap on the number of schemes in an investor's portfolio, as investors increasingly use mutual funds to meet both long-term and short-term goals. However, they feel investors should restrict themselves to 10 schemes, as a higher number is difficult to monitor and manage.

Access to different markets

You might also need an investment to serve a specific role in your portfolio, such as generating income or adding stability during periods of market duress. Mutual funds can provide access to many different parts of the market, even within the broad asset classes of stocks and bonds.

Investing in multiple mutual funds can be a smart move for investors who want to diversify their portfolios and gain access to professional asset management. However, it's important to be aware of the possible drawbacks, such as the potential for over-diversification and higher transaction costs.

The three-fund portfolio is a sound investing approach, and you can't go wrong with it. If you set up asset allocation appropriate for your age, a three-fund portfolio will most likely perform well. I say "most likely" because nothing is guaranteed with investing, but this strategy is one of the safer options.

Mutual funds are largely a safe investment, seen as being a good way for investors to diversify with minimal risk. But there are circ*mstances in which a mutual fund is not a good choice for a market participant, especially when it comes to fees.

Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.

Potential for loss: Mutual funds are not FDIC insured and may lose principal and fluctuate in value. Cost: A mutual fund may incur sales charges either up-front or on the back end that are passed on to the investors. In addition, some mutual funds can have high management fees.

Can you have too many funds? ›

Understanding when you have too many funds

While it's important to make sure your portfolio is properly diversified, having too many funds can make it difficult to keep track of your investments. You should therefore only keep as many funds in your portfolio as you're comfortable monitoring.

It's all about moderation

If you make a point to load your portfolio with stocks across a range of market sectors, you'll have more protection when one sector takes a beating. But while it's definitely a good idea to own a few dozen stocks, you don't want to load up on too many.

You should put no more than 10% of your total net assets in high-risk investments, with the remainder diversified across a range of mainstream investments. Read our article about how diversification can work for your investments.

One selling point is that they allow you to hold a variety of assets in a single fund. They also have the potential for higher-than-average returns. However, some mutual funds have steep fees and initial buy-ins. Your financial situation and investment style will determine if they're right for you.

A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk.

What is a good mutual fund portfolio? A good mutual fund is one that aligns well with your goals, resources, and risk tolerance levels. Selecting mutual funds based on your goals and risk-taking capacity will help you achieve your goals faster and manage your portfolio better.

There is no one right answer to questions like how many funds should I invest in. But just adding new funds to the portfolio to 'diversify' or reduce risks doesn't work. So, in general, having 1-2 schemes in the chosen fund category would be sufficient.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

What is the 15x15x15 rule in mutual funds? The mutual fund 15x15x15 rule simply put means invest INR 15000 every month for 15 years in a stock that can offer an interest rate of 15% on an annual basis, then your investment will amount to INR 1,00,26,601/- after 15 years.

How much should I allocate to a mutual fund portfolio? Ideally, you must save and invest 20% of your income. Your portfolio allocation will depend on your goals and risk appetite. Equity is the best for long-term goals and high-risk takers.