1. While a single-MF portfolio has high standard deviation - big gains, heavy losses - MF addition brings it down significantly, thus reducing portfolio risk.
2. However, after a critical number of MFs - around 5 - a portfolio’s standard deviation doesn't differ much with MF additions.
3. In an over-diversified portfolio, returns of good MFs don't get truly reflected as their contribution is diluted by underperformers.
4. Also, probability of duplication and overlapping is higher, as each diversified MF invests in 40-50 stocks, and MFs of same category are likely to invest in same companies and sectors overall.
5. However, diversifying across fund houses is healthier for a portfolio, to reduce risk of any of them going downhill for own unique reasons.
6. A simple diversification is a fund basket of different categories and AMCs, selected from top 5 funds with 5 / 10-year highest returns, to reduce churn on periodic reviews.
7. A Hybrid Aggressive fund will be suitable for 25-yr+ retirement corpus due to its auto-balancing mandate.
8. A Multicap fund for 20-yr+ goals helps weather multiple cycles and volatility across all market caps.
9. A Midcap fund for 15-yr+ goals can benefit from our vibrant economy.
10. A Smallcap fund for 10-yr+ goals can help achieve outstanding returns.
11. An ELSS fund is ideal tax-saving equity investment with 3-yr lock-in.
12. A Debt fund helps in rebalancing as well as an emergency fund.
13. Long-term equity SIPs are ideal for regular earners not wanting to "time" market behaviour while investing.
14. Periodic review and rebalancing, even replacing chronic "laggards", is essential for a healthy diversified portfolio.
15. And this can be achieved within same number and type of funds.
2. However, after a critical number of MFs - around 5 - a portfolio’s standard deviation doesn't differ much with MF additions.
3. In an over-diversified portfolio, returns of good MFs don't get truly reflected as their contribution is diluted by underperformers.
4. Also, probability of duplication and overlapping is higher, as each diversified MF invests in 40-50 stocks, and MFs of same category are likely to invest in same companies and sectors overall.
5. However, diversifying across fund houses is healthier for a portfolio, to reduce risk of any of them going downhill for own unique reasons.
6. A simple diversification is a fund basket of different categories and AMCs, selected from top 5 funds with 5 / 10-year highest returns, to reduce churn on periodic reviews.
7. A Hybrid Aggressive fund will be suitable for 25-yr+ retirement corpus due to its auto-balancing mandate.
8. A Multicap fund for 20-yr+ goals helps weather multiple cycles and volatility across all market caps.
9. A Midcap fund for 15-yr+ goals can benefit from our vibrant economy.
10. A Smallcap fund for 10-yr+ goals can help achieve outstanding returns.
11. An ELSS fund is ideal tax-saving equity investment with 3-yr lock-in.
12. A Debt fund helps in rebalancing as well as an emergency fund.
13. Long-term equity SIPs are ideal for regular earners not wanting to "time" market behaviour while investing.
14. Periodic review and rebalancing, even replacing chronic "laggards", is essential for a healthy diversified portfolio.
15. And this can be achieved within same number and type of funds.