How many MF scheme to keep in a portfolio ?

Financial planners emphasize the challenge of setting a definitive limit on the number of schemes within an investor's portfolio, particularly as investors increasingly rely on mutual funds to fulfill both short-term and long-term financial objectives.

Investors typically harbor a spectrum of life goals and objectives, each necessitating distinct time horizons for achievement. Attaining these objectives often entails diversifying across various asset classes such as equity, fixed income, and gold, or a combination thereof. Thus, portfolios must be strategically diversified across asset classes and different schemes.

Each scheme within an investor's portfolio serves a specific purpose. For instance, liquid or ultra-short-term funds, as well as arbitrage funds, cater to addressing emergency financial needs. Equity savings funds are suitable for financing short-term goals like funding a child's education or planning for a vacation within 1-2 years. Meanwhile, for securing funds over a longer time frame, say five years, investors might opt for target maturity funds. Additionally, gold funds serve as a hedge against inflation.

However, financial planners advocate for prudence in portfolio management, suggesting that investors limit themselves to around 10 schemes. Maintaining a higher number becomes increasingly arduous in terms of monitoring and management. One approach to reducing the number of schemes within portfolios is to scrutinize overlaps with similar schemes. For example, if an investor already holds a large-cap scheme, they should assess the extent of overlap before considering additional investments in a flexicap fund, another large-cap fund, or an index fund. A high overlap implies redundant diversification efforts, offering minimal benefit.

In conclusion, while the selection of schemes should align with an investor's diverse financial objectives, maintaining a manageable number within the portfolio is essential for effective monitoring and management. Evaluating overlaps among schemes can aid in streamlining the portfolio while ensuring optimal diversification benefits.