Is holding 5 different mutual funds enough diversification for a Rs 50k monthly SIP?

Holding multiple funds in the same category does not mean you are actually diversified because of portfolio overlap. Many investors believe that holding five different mutual funds means their money is spread out safely.

However, if you hold four different flexi-cap funds and a large-cap fund, there is a very high probability they all invest heavily in the exact same blue-chip stocks. For example, all five of your funds might have HDFC Bank as one of their top holdings.

If the banking sector takes a hit, all five of your mutual funds will drop at the exact same time. This means you have not actually diversified your equity exposure at all. You just bought the same underlying assets through different fund houses.

True diversification requires spreading your capital across different asset classes and different market capitalizations. The best thing you can do for your financial journey is to keep things incredibly simple.

Build a portfolio with a very small number of funds. Two or three funds at most is usually more than enough for most retail investors.

Ensure they do not overlap by checking their underlying stock holdings. Once you set up a clean portfolio without overlap, automate your SIPs and get so busy living your life that you forget to check your daily returns.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.