How many mutual funds are needed for goal -based investment?

Copyright © HT Digital Streams Limit all rights reserved. Money how many mutual funds are needed for goal -based investment? And how diversified should they be? Rajesh Sharma 4 min Read 18 Apr 2025, 11:20 am Ist Portfolio Diversification is important, but doing it just to diversify, does not work and can fire. (IStockphoto) Summary investors can plan with a limited set of mutual funds for their financial goals and should the potholes of too much diversification avoid how many mutual funds need investors for their financial plans and to what extent should they be diversified? Although several new mutual funds and even new categories have been introduced over the years, investors really do not need more than eight-10 of it to achieve their financial goals. Depending on whether the goals are short, medium or long term, investments in equity, debt or hybrid – a combination of equity and debt – funds can be made. The risk of diversification of too much diversity is important, but it does not work and cannot work. This is because the benefits of diversification to a point tend to extract and dilute the yields. The risk of too much diversity occurs when incremental investments reduce the expected returns to a greater extent than reducing the risks meaningfully. Over-diversification spreads the portfolio to thin and eventually only becomes a rag day of several low-condemnation ideas with small assignments. As a result, the portfolio does not benefit significantly from the performance of a specific asset class or investment. Read also | For some NRIs, capital gains take from Indian mutual funds tax -free funds for large cap. Several major cap funds have similar portfolios-mainly heavyweight shares of the benchmark Nifty 50 index. Investing in multiple large cap funds does not mean diversification-it just means keeping the same stock, which are large voters of the Nifty 50 index, in different funds. As a result, the portfolio’s ability to perform better. A simple Nifty 50 index fund may be enough to get exposure to big cap. Smart diversification to get it right, portfolios must be diversified with investments that have low co-relationship with each other, or better, those that are inversely related. The stock markets and gold are often inversely related. If stocks are volatile due to global risks or geopolitical tension, there is a greater demand for a safe haven such as gold and its prices tend to rise during such periods. Gold has yielded returns of 28% over the past one year (from April 17), while the Nifty 50 index returned slightly over 8%. Equity and bonds have also shown a low co-ratio over the years. Quality effects stabilize a portfolio because debt investments do not have the same degree of extreme price fluctuations as equity. Within the fixed revenue category, careful investment is needed because certain categories of debt funds can be more sensitive to changes during interest rate cycles. Langduration categories such as gold-plated funds investing in government bonds are an example. These funds tend to be underperformed when the interest rate cycle rises. Read also | Sachet-sized mutual funds can still be difficult for the domestic worker, as an investment option can even invest in debt through hybrid funds. Hybrid strategies such as Balanced Foreign Funds (BAFs) rebalance fairness and debt in a more tax -efficient way. A typical BAF buys stocks when valuations are low, selling shares and increasing the exposure to debt when stock value is expensive. If investors rebalance on their own shares and debt, they will attract capital gains tax when selling the investments that prune. Emerging markets such as India and developed markets such as the US also have a low co-ratio, which is why the overseas allocation is also important. A study of three-year returns of a 50:50 Portfolio India and US markets (Balanced again at the beginning of each year) shows a lower volatility to the US index S&P 500 and achievement closer to India’s benchmark Nifty 50. Consider alllaction for their portfolios. Multi-asset allocation funds, as the name suggests, can be a one-time solution for investors who want a single fund to take care of all their diversification requirements. These funds invest in stocks, debt, gold and international markets, with the fund manager deciding awards based on his or her views. Mapping funds with long -term goals goals that last for more than five six years, investors may consider equity funds. For investors, investors for medium goals that have been three years away can opt for hybrid funds, and for less than three years, investors can consider debt funds. It is even possible to diversify investments within a fund category. Among equity funds, the FlexiCap category – where the fund manager can freely invest over buckets of the market cap – investment styles can differ. Read also | Mutual Funds Engineer New category in search of tax-efficient debt funds Certain funds follow the growth in investment style, which performs better during certain phases of the stock markets, while some funds follow value investment, which performs better in other phases of the markets. However, use just as many funds as needed to achieve goals. There are different fund categories that have emerged, including smart-beta funds and quantitative funds. Go to such funds only after fully understanding their inherent risks and the return profile. Alternatively, there are many funds that run portfolios dynamically over low co-related asset classes. Diversification for diversification is not healthy for a portfolio and can reduce the ability to capture you when a specific investment performs better. Rajesh Sharma is founder of RS Arthsidhi, captures all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More topics #Money #personal financing coin specialties