How Many Mutual Funds Should I Own in My Portfolio? (2024)

FAQs

How Many Mutual Funds Should I Own in My Portfolio? ›

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

However, analysts say that at any point of time, three to five mutual funds . A few multi-caps, combined with one large-cap and a mid-cap, should do the trick. If your appetite is a high-risk one, then you may pick a fund of small-caps. Additionally, you should make sure that funds you pick don't hold the same stocks.

If you have a particular strategy or want diversification within your portfolio, then investing in multiple mutual funds can be a good idea. Diversification implies spreading your investments across different asset classes, industries, and geographical regions to reduce your overall risk.

The ideal number of mutual funds for building the best mutual fund portfolio depends on various factors, including your investment goals, risk tolerance, and time horizon. However, a general rule of thumb suggests having between 6 to 10 funds across different asset classes to achieve adequate diversification.

A commonly cited rule of thumb is to own between 10 and 20 mutual funds, but the actual number will vary depending on your individual circ*mstances. Too many funds can lead to unnecessary over-diversification and overlap. There's really no point in owning, say, two index funds that invest in the same index.

It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

Meaning of the 15-15-15 rule in Mutual Funds

The Investment: You should invest Rs 15,000 per month. The Tenure: The total of your investment should be 15 years. It means that you will invest Rs 15,000 every month for the next 15 years. The Return: Your expected returns on your investment should be 15%

If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.

What is the average return of mutual funds? Historically average around 9% to 12% annually. Subject to market volatility but offer potential for higher returns.

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

What is the 80% rule for mutual funds? ›

Scope and Requirements for a Fund's 80% Policy

Under the adopted amendments, any fund whose name suggests that the fund focuses its investments in a particular area or has certain characteristics (such as thematic funds or “growth” or “value”) will need to include an 80% policy.

One way is to allocate 80% of your portfolio to low-risk, diversified assets, such as index funds, and 20% to high-risk, high-reward assets, such as individual stocks or cryptocurrencies. This way, you can balance stability and growth, while limiting your exposure to losses.

A 3 fund portfolio is an asset allocation mix comprising three asset classes, domestic stocks, international stocks, and domestic bonds. Standard & Poor's 500 is a market index that tracks the market value and performance of the top 500 US large-cap stocks.

If you think that's too low a number, think again. An average mutual fund has about 40 to 80 securities (stocks or bonds). So, a fund is often well-diversified in itself. Thus, four-five funds from different fund houses can take care of diversification adequately.

So, what's the ideal number of funds? Well, there is no right or wrong answer. 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.

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

While the three-fund portfolio is great because it's simple to learn and easy to manage, it isn't without its disadvantages, as we discuss on our personal finance for physicians primer.