Is it Good to Invest in Multiple Mutual Funds?

Actual Question:

Is it good to add Birla Sunlife Frontline ICICI value discovery SIPs to one’s existing Axis Long Term, Franklin Small Caps and Reliance Tax Saver?

Answer:

Dear Friend!

• Please do not disturb the investments already made. Let them be for a very, very long time.
• All future investments please make only in a low-cost, Equity, Index fund or an exchange traded index fund, where the fund management cost is below 0.50%.
• Mutual funds bring out new, exotic sounding schemes for market differentiation purposes and attracting investments. Please do not get carried away by such names. The actively traded finds charge 3 to 4% fund management fees per annum. This is a huge and unjustified cost when we are talking about real wealth creation over 30–35 years.
• Go for a solid institution, which can be expected to be in business for the next 100 years - SBI, HDFC.
• Any other investment idea really does not make any great difference.

 Please read the following related articles for better understanding:

• Miracle of Compounding
• How Frequent Changes to Mutual Fund Portfolio Affect Investor Interest?
• How to Choose the Right Mutual Fund to Invest?
• Which is the Best Indian Hedge Fund?
• How to Invest in Overseas Stock Markets?

To conclude there is no harm in investing in multiple mutual funds so long as one invests in a low-cost index fund or an exchange traded fund (ETF).

Thank you,

With Best Regards

Anand

Diversity In Portfolio Slide

Diversity in Portfolio Depicting Graphic

Diversity of Portfolio Definition

Diversity of Portfolio

‘Portfolio Diversity’ means spreading the investment risk by investing in a large number of stocks across various sectors. The concept of diversity stems from the popular adage “It is not advisable to keep all eggs in one basket”.  The expectoration is that in a diversified portfolio a majority will produce average results, a small number will result in loss and a few will do extremely well and the final result will be average of this varied performance. Diversified portfolio is recommended for investors who do not know investing.

 

Diversity of Stock Portfolio

Safety through diversity comes only from a really large number. Having 20 or even 50 stocks will not produce the required diversity. A portfolio of 500 stocks only will ensure adequate diversity. Since purchasing and keeping track of such a large number of stocks is impossible for an individual investor, leaving investing in an index fund, a mutual fund that tracks a diversified index like ‘S&P BSE 500’ as the only viable option.

Diversity provides safety but does not create real wealth. Master value investors like Charlie Munger prefer highly concentrated portfolios. In fact his portfolio comprises of just four stocks!