Know how diversification can facilitate your reach towards your financial goals by investing your money in several funds that fits your need.

“Don’t put all the eggs in one basket.” The aforementioned can be a significant fundamental support example in which the mutual funds are structured, as ‘Diversification’ is one among the largest traits of investments made in them. The common question which vexes many investors is that – “How many funds (schemes) should they need in their portfolio?” You too could be having such a query in mind. Let’s work out its solution.

The Essence of Diversification within the Portfolio

Putting all of your hard-earned money into one investment firm is avoidable, because just in case thanks to a sudden market fall, your fund’s performance falls, then your entire investment suffers. A diversified portfolio holds various funds having investments across diverse segments of the market to balance the risk-reward equation. Diversification is all about creating a mixture that helps one keep minimum risk that arises thanks to market volatility or a sector-specific downturn. Hence, more funds would mean that the danger is diversified and you get enough opportunities to earn greater incomes.

Does It Mean One Should Invest in such a big amount of Funds at a Time?

Answer would be “No”, Diversifying investment never implies that one should hold an oversized number of funds within the portfolio at the identical time. This can be because it’s such a difficult task to manage an oversized number of schemes within the portfolio at an identical time. It should even reduce the profitability of the fund as over-diversification is additionally risky. Hence, it’s a requirement for an investor to carry such several funds within the portfolio which may help one achieve the specified returns within time. The portfolio must be designed after analyzing the market and matching investment objectives thereupon of the schemes. A limited number of schemes only can yield the specified profits for the investors.

What Should Be the Limited Number of Funds, and Why?

There isn’t any atomic number of funds that might act perfect for the investors. The most objective of making a portfolio is to form in a way so it fetches the specified returns. If we consider the case of the common investors, the most important investment objectives they need include capital growth, financial stability, and a tax-saving solution. In step with that, an investment within the equity plan, debt fund, and one ELSS scheme is enough. However, which subcategory of the equity & debt investment company suits them further depends on their financial status, risk-bearing capacity, furthermore the ultimate goal of investing. Taking proper guidance from the industry expert is sort of essential in such a circumstance.

Conclusion – to keep up a balance between risk & reward, one must choose one open-end investment company within the portfolio. This helps in minimizing the danger of exposure to one open-end investment company investment. However, this is often also important to feature an optimum number of funds within the portfolio to avoid over-diversification which can reduce the profit-generating capacity of the portfolio. Mutual funds provide the most effective solution to each financial need; you simply must grab more knowledge of the funds and match them along with your objectives to form the ultimate selection.


At EquityGyan.in, you can invest in the best mutual funds online by taking assistance from our team at the Investment Planning Desk. You may ask your fund-related queries and which mutual funds to invest in from our team to make an adequate decision in terms of fund selection for your portfolio.