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How many Mutual Fund Schemes should I invest in?
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Technically speaking, there is no limit as to how many schemes one can invest.
But logically speaking, investing in more schemes does not make sense. Here is why.
As we were discussing before, investing in mutual funds should be financial goal-specific.
So if I have 5 financial goals, I might need 5 schemes so as to diversify risk.
This does not mean that if I have 10 goals, I need to pick 10 schemes
It is always important to keep the number of schemes to a minimum.
The reason behind this is that as the number of schemes increases, the underlying companies tend to overlap.
This hampers the returns beyond a certain point.
Because, the overlapped companies begin to influence and decide the scheme returns.
Further, it becomes difficult to track the performance of the schemes.
My bank statement will tend to become big and complicated because I might be using SIP for the investments.
In general, anything more than 5 schemes would be of not much use.
I begin with one scheme. Then when I add an additional scheme, it should be from a different scheme category or for a different financial need.
If not, it will be wise to add a second SIP date to the already existing scheme.
When adding a second scheme, I need to check and Comparing Mutual Fund Schemes before really starting the investment.
That means, over diversification generally is of no good use.
As an investor, For every scheme I have invested, I need to set a financial goal if not already done.
Actually speaking, I need to start the other way.. I need to first set a financial goal and then pick an appropriate scheme.
At any point of time, I should be in a position to answer as to why I have picked a specific scheme.
If this is not done, I will end up with a bunch of mutual fund schemes and statements and lose track of what is happening.
Types of Mutual Fund Schemes