Is holding 12 different mutual funds actually making my portfolio safer?

Question

I am 32 and investing Rs 40k monthly across 12 different mutual funds.

My portfolio includes a Nifty 50 index fund, large-cap, mid-cap, small-cap, flexi-cap, and thematic funds like defense and manufacturing.

I thought this was the best way to diversify and reduce risk.

But a friend recently told me I am just buying the same stocks over and over. Is this true?

Sachin Kabra · Accepted Answer

Buying a large number of mutual funds does not equate to a well-diversified portfolio. If you map out the underlying holdings of those 12 funds, you will find massive overlap. Blue-chip stocks like HDFC Bank will appear across multiple funds in your list. In many cases, up to 30-40% of the underlying stocks in such a bloated portfolio are exactly the same. This is the illusion of diversification. You are just multiplying your funds without actually spreading your risk. The true purpose of diversification is to reduce risk by investing in non-correlated assets. Gold and equity do not move in tandem and they react differently to market conditions over long periods. Holding 10 to 15 mutual funds is unnecessary for equity exposure. Two broad-market index funds are usually more than enough to capture equity market growth. Instead of buying 20 equity funds, spread your capital across different asset classes. Build a portfolio that includes equity, real estate, fixed income, and precious metals like gold and silver. Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Is holding 12 different mutual funds actually making my portfolio safer?

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