POSTED BY August 11, 2013 11:58 pm COMMENTS (4)ON
I have read a lot of comments on this forum regarding MF investments, many of which have helped me make decisions on my own investments.
One thing I have often come across is –
Do not select too many funds for your investments, but regularly invest in just 2-3 (or max 4) MFs of diffrent categories.
I do agree with above to some extent because investing in 10-15 MFs will just lead to stock overlap across these funds, and wont really diversify your portfolio.
However I also have another view –
Suppose I invest regularly in just 2 MFs – scheme A (large caps) & scheme X (small/mid caps), and say after 4 yrs i have an investement of about 2 lakh in each of them. Now if due to some reason (not related to market condition – say change of fund mgr or some other internal problem with that scheme of the fund house), scheme A starts performing very poorly and continues to do so. I risk getting very low / -ve returns on 50% of my investments.
So wouldn’t I be in better condition had I split my large cap investments between 2 Schemes A & B? In other words, would it not be advisable to diversify amongst the MFs themselves, to ensure you are also protected from Fund house / Scheme specific risk?
Does this make sense or am I simply over-analyzing 🙂 ?
Would like to hear your views on this..
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4 replies on this article “General query on Mutual Fund investments”
Of course switching over to another fund would be the logical thing to do, but I’ll be doing that only after my 50% investment has suffered due to the fund’s under – performance..
Point I was making is that would it be wise to put my eggs in just one basket (1 good fund in its category)?
Or do u feel what I have suggested has a very low probability of occurrence, and the hassle of managing & return fluctuation by investing in multiple funds (i would select 2 in each category) outweighs the benefit provided by diversifying amongst them?
please read 3rd line as —-25 or so no. of shares
i concur with Ashal on the point . moreover i am now of the view that it is better to select less no. of mfs from process driven mf AMC’s mf , and the selected fund should have less no. , say less than 25 or so. it may be debatable , but i think, the fund manager should have strong bias of selection and concentration unlike a lay investor.
Dear Vaibhav, if the under performance continues, you have the option to redeem & invest in the good fund of your choice.