Is investing in multiple mutual funds right for you? Here are its pros and cons (2024)

FAQs

Is investing in multiple mutual funds right for you? Here are its pros and cons? ›

Investing in multiple mutual funds can be a smart move for investors who want to diversify their portfolios and gain access to professional asset management. However, it's important to be aware of the possible drawbacks, such as the potential for over-diversification and higher transaction costs.

While mutual funds are popular and attractive investments because they provide exposure to a number of stocks in a single investment vehicle, too much of a good thing can be a bad idea. The addition of too many funds simply creates an expensive index fund.

One selling point is that they allow you to hold a variety of assets in a single fund. They also have the potential for higher-than-average returns. However, some mutual funds have steep fees and initial buy-ins. Your financial situation and investment style will determine if they're right for you.

It can depend on a number of factors including the number of funds you're comfortable monitoring in your portfolio, your investment objectives and risk appetite. While it's important to have a mix of styles and strategies to achieve diversification, that doesn't mean you need a long, unwieldy list of funds.

Yes, its completely upto you, how many mutual funds you wish to invest. But you must choose the best mutual fund that satisfies your needs, if you need some money after 2 years say for marriage, you must invest in a fund which is formed of high beta stocks to give you a good return in short term period.

Multiple Brokerages Help Diversify and Manage Risk

A benefit of owning multiple brokerage accounts is they can help diversify your holdings.

Mutual funds can be good for diversification and professional management, but like any investment, they come with risks. It depends on individual financial goals and risk tolerance.

The bottom line is that there is no universal answer to this question -- it depends on your personal situation. Just remember to consider these important factors: How much money you have to invest. Whether you need to diversify your investment portfolio or want to put all your available capital into the stock.

Some index funds provide exposure to thousands of securities in a single fund, which helps lower your overall risk through broad diversification. By investing in several index funds tracking different indexes you can built a portfolio that matches your desired asset allocation.

While there's no fixed rule, a lower overlap is better for diversification. Aim to keep it below 33% for a balanced portfolio. To reduce overlap: Diversify across fund categories systematically: Investing in funds from different categories won't guarantee low overlap unless chosen strategically.

Is it OK to have 10 mutual funds? ›

Too Much of Mutual Fund Investment

You must remember that each equity fund you invest in has at least 50 stocks. If you hold, say, 7 to 10 of these equity funds, you are in actual fact, investing in around 500 stocks on the high side. This figure could go higher, depending on your distinct number of funds.

At a 12 per cent rate of return, a Rs 1,000 SIP may earn you Rs 1,14,00,000. This demonstrates the power of compounding. Now, if you raise your SIP amount by 10 per cent each year, as your income grows with each passing year, this SIP over 40 years can generate a corpus of Rs 3.5 crore.

You can consider replacing 1 or 2 small-cap funds with a large-cap or multi-cap fund. This will provide stability to your portfolio. There is an overlap between Quant Infrastructure Fund and Quant ELSS Tax Saver Fund Growth as more than 50% of portfolio allocation is the same, so invest in either one of them.

Most debt mutual funds give you similar returns so it doesn't make sense for you to own multiple debt mutual funds. Sectoral Mutual Funds: The number of sector mutual funds you invest in should be the number of industries you have great knowledge about.

Are mutual fund investments safe? Market-linked mutual funds are subject to market risk that can be caused by several reasons such as changes in policy, macroeconomic conditions, pandemics, poor investor confidence and so on. Therefore it is a good idea to go through document papers carefully before investing.

By investing in a multi-asset fund, you can smooth out these fluctuations, as the varying performance of different asset classes tends to balance out over time. Example of asset class performance: Equity: Typically leads to significant wealth growth over the long term but can be highly volatile.