I have just started investing in Mutual funds. Is it good to invest in different funds with Rs 10000 each or 1 or 2 funds with say Rs 100000 each. Please suggest.

Ans: Hello Somashekhar. Thanks for writing to me. The funds you invest in are good funds.

You have not mentioned any goals or your risk profile. If you can elaborate on them, then I may be able to recommend other funds.

Periodic reassessment of your portfolio and goals is essential to reaching your goals.

Ans: It's generally advisable to diversify your investments across multiple mutual funds to spread risk. Consider allocating your investment across two or three mutual funds to achieve diversification. Look for funds with a track record of consistent performance, managed by reputable fund houses, and aligned with your risk tolerance and investment goals. Opt for a mix of equity and debt funds to balance risk and return potential. Consult with a financial advisor to identify suitable mutual funds based on your financial objectives, risk appetite, and investment horizon.

Ans: You are 59 years old and have invested Rs. 2 lakhs across 12 mutual funds. These funds are diversified across large-cap, small-cap, large & mid-cap, and thematic funds. While diversification is important, over-diversification can lead to a scattered portfolio that is difficult to manage and may not yield optimal returns.

Evaluating the Number of Funds
Investing in too many funds can dilute the benefits of diversification and make it harder to track performance.

Over-Diversification: Holding 12 mutual funds, especially with a relatively small corpus of Rs. 2 lakhs, might not be the most efficient strategy. Each fund may have overlapping stocks, reducing the overall diversification benefit.

Concentration Risk: By spreading your investment across too many funds, you may be inadvertently increasing your risk if these funds are not carefully selected to complement each other.

Simplifying Your Portfolio
A well-structured portfolio typically has a few carefully chosen funds that cover different segments of the market. Here’s how you can simplify:

Consolidate Funds: Consider reducing the number of funds. A portfolio with 3-5 funds can provide sufficient diversification without being overly complex.

Focus on Core Funds: Choose funds that have a strong track record and align with your risk tolerance and financial goals. Large-cap and large & mid-cap funds can form the core of your portfolio, providing stability and growth.

Thematic Funds: These can be a good addition but should be limited to a small portion of your portfolio due to their higher risk. Ensure they align with your long-term goals.

Rebalancing and Portfolio Review
At 59 years old, your investment strategy should also consider the proximity to retirement. It’s important to balance growth with safety.

Review Asset Allocation: Ensure your portfolio is aligned with your retirement goals. This might mean increasing your allocation to debt or hybrid funds to reduce risk.

Regular Monitoring: Keep an eye on the performance of your remaining funds. Periodic reviews will help you make informed decisions about rebalancing or further consolidation.

Final Insights
While diversification is crucial, over-diversification can lead to a diluted and hard-to-manage portfolio. Simplifying your investment by consolidating into a few well-chosen funds can provide better returns and easier management. As you approach retirement, ensure your portfolio is balanced to provide both growth and safety, aligning with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello and thanks for writing to me.

I am assuming you are investing with a goal for long term wealth creation and are fine with the volatility associated with equity. In such a case, you can consider investing in 2 funds, a multicap fund and a flexicap fund. A multi cap fund will ensure you have exposure to companies across market capitalizations while a flexicap fund can move across market capitalizations.

Do note that I am recommending the fund type without any other information about your objective or risk appetite. If you give me other details, I may recommend other type of schemes.