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How many mutual funds should you hold in a portfolio

05 Jan 2023

Investors are all for the diversification of financial portfolios and the consensus holds that portfolios should strike a risk/reward balance. Experts believe that financial portfolios should ideally have 20 or 30 stocks each, bringing in a systematic amount of risk. However, you will discover around five times the number of stocks in just one mutual fund. What does this mean? Should you hold just one mutual fund, or many mutual funds? 

  • Nothing Like Too Many Mutual Funds

Some investors will say that there is no such thing as ‘too many’ mutual fund investments. On the other hand, there are those who will swear by just one fund, a single broad mutual fund, held for a period. Furthermore, these investors state that even in a single fund, both stocks and bonds may be balanced out and you get the asset allocation at one place. On the side of equity, a single investment of a mutual fund may not provide appropriate exposure to a variety of investments. Mutual fund investments can include global funds that furnish investors with a bit of many things, but not sufficiently enough of all things. With a mix, like a large-cap fund of a domestic nature, and a domestic small-cap fund, you get your basic coverage on the national front. Along with this, two global funds, at the maximum, give you international exposure. 

  • Where to Choose From 

Those investors who choose to have a couple or more mutual funds can do so via an online investment, opting for recommendations from a superior broker like Motilal Oswal. Such investors may opt for one fund from markets that are developed, such as Europe or the USA. The other funds could be from emerging markets like Latin America or India, perhaps. For Indians, domestic markets could be represented by India, but this may be considered an emerging market as well. You, as an investor in mutual funds, could also consider what kind of returns you desire. If you want exposure to a fixed income, a bond fund of the domestic kind can be an additional component of the blend. 

  • Think of the ‘Style Box’

Conventionally, the ‘style box’ of mutual fund investments, especially which you can see while making an online investment, consists of 9 categories of equities of a domestic nature. These categories have their basis in capitalisation of the market (small, micro, large, mid, etc.) and the style of investment (growth, mixed and value). Similarly, there is a ‘bond style box’ which has triple maturity classes (short-term, long-term and intermediate), and three groups of the types of the quality of credit (low, medium, and high). Investors do not necessarily require funds in all the bond and stock classes. If you are looking to invest in mutual funds, you can select a few funds that best match with your asset-allocation needs. Additionally, you may evaluate your potential for risks and returns and make a choice based on these relevant factors. 

  • Need-Based Mutual Funds

Your mutual fund investment should ideally be based on your own requirements and portfolio diversification considerations. In this, a smart broker like Motilal Oswal can be of immense help.

Related Aritcles:

How to Analyse Mutual Funds for Big Returns | Things to Know Before Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Upcoming IPO | LIC IPO

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