Representative image
A strong mutual fund portfolio isn’t about owning many schemes—it’s about owning the right ones. A robust portfolio is defined by purpose, not quantity, and each fund should play a distinct role toward your financial goals. Begin by asking what each fund is doing for you and how it fits your timeline and risk tolerance.
Re-establish your asset allocation
Before cutting funds, set your mix of equity, debt and hybrids. Equity is the growth engine, debt provides safety and stability, and hybrids strike a balance. Once that mix is clear, you can see which funds are duplicates or misfits.
Trim the excess—less can be more
Owning ten large-cap funds doesn’t guarantee diversification. Many funds may hold the same stocks. If two funds overlap heavily (for instance, 60% of the same top stocks), adding both usually clutters the portfolio rather than strengthening it. Aim for a leaner set of five to seven funds across categories.
Check overlap, cost and performance
Look for these warning signs: • Significant overlap in holdings between funds, reducing unique diversification. • Expense ratios eating into gains (especially when passive strategies deliver similar market returns). • Funds that no longer align with their stated style or your own investment temperament. Remember: yesterday’s winner may not lead tomorrow.
Consolidate wisely & rebalance
Story continues below Advertisement
Once you identify redundant funds, merge or redeem them and shift savings into the core portfolio. Periodic rebalancing matters: a 60:40 equity–debt split can easily drift to 75:25 after a bull market, increasing risk without a guarantee of higher returns. Rebalance once or twice a year.
Keep one eye on taxes when you sell
When decluttering, be mindful of capital gains tax and exit loads. Selling too early or switching too frequently can be costly. Make sure the benefits of trimming outweigh the tax impact.
Tie every fund to a goal
Every scheme in your portfolio should have a clear purpose—saving for a home, retirement, child’s education, etc. Managing by goal rather than emotion keeps decisions disciplined and the portfolio truly balanced.
FAQs
How many mutual funds should I ideally hold?
There’s no fixed number, but a functional portfolio often works well with about 5 to 7 funds across categories. Holding many more can create overlap and unnecessary complexity.
If I exit underperforming funds, am I risking missing a rebound?
Possibly—but focus on sustained underperformance and duplication. Consider exiting if a fund has lagged its benchmark and peers over a full cycle and no longer fits your style or risk appetite.
Does switching too many funds harm my returns?
Yes. Frequent switching increases costs, taxes, and disrupts compounding. Rebalance periodically (once or twice a year) rather than reacting to every market headline.