BackHow to revamp your MF portfolio
Hold no more than 7-8 schemes, otherwise the benefits of diversification get negated
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If you haven’t yet revamped your existing mutual funds (MF), then we suggest you do so soon because equity markets are expected to rise over the next 3-5 years. For instance, if you’ve got a bad scheme, there’s no need to wait till it earns some gains for you to sell it. A bad fund, in this case, is a bad fund and you need to sell it and switch to something else. But many of us have over the years accumulated multiple MF schemes and ended up with a bloated portfolio. You need to have 7-8 schemes across categories. Anything in excess of that would negate the benefits of diversification. Here’s what you need to do:
Divide family portfolios
We tend to put our entire family’s portfolios together and then measure them up. For instance, the father may have invested some money in the children’s names and some in his own name. The spouse would also have her own investments. Ultimately, all these portfolios are put together and compared. This approach is wrong. You need to segregate all these portfolios and take a call on each of them separately. That way, you can find out whose portfolio needs more schemes and whose needs to be trimmed.
Risk profiles and goals vary from person to person, so there are schemes that suit one member of the family but may not suit others.
Ideal number
Though there is no scientific number of schemes you should hold in your portfolio, our experience shows that 7-8 schemes, maximum 10, across categories are enough. The benefits of diversification get negated otherwise, as a rise in one or few schemes could be offset by schemes that may not do well.
Also, there are 50-100 schemes at any time that could be worth investing in. This doesn’t mean you should be invested in all of them. You need to choose one that fits your needs, and have a tight portfolio. Moreover, a meaningful number of schemes also help you track it better.
Categorize
Say, you have 30 schemes in your portfolio and don’t know where to start. You’ll need to do some research. First, categorize them into large-cap, multi-cap, mid-cap and so on. See if you have too many schemes in one category and few or none in others. Make sure you have one or two or three large-cap schemes. Then, depending on your risk profile, one or two mid-cap schemes would do well. See if you have sector or thematic funds. These are seasonal funds; if the sector has already played out, you can sell them. If all this sounds complicated, you must sit with your financial planner or adviser and sort out your portfolio.
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