How many mutual funds can I own?

Mutual fund 2024 is a trending topic now, whether you browse the internet or have a conversation with friends who are focused on attaining their financial goals. Be it mutual funds, index funds, equity funds, debt funds, passive debt funds, passive equity funds or even SIP or systematic investment plan, these are all means to arrive at your financial goals in the new year. Indeed, investing in mutual funds has become increasingly popular over the years, offering a convenient way for individuals to access diversified portfolios managed by professionals. However, as you navigate the world of mutual fund 2024, you might find yourself pondering a crucial question: how many mutual funds should you invest in? Let us find the answers to a bevy of pressing questions, from what is the ideal mutual fund portfolio to which mutual funds should I invest in and the best type of mutual fund for your needs.

Investing in mutual funds 2024

In 2024, the realm of mutual fund investing has witnessed significant evolution, with a plethora of options available to investors. From traditional actively managed funds to modern passive index funds and everything in between, the choices can be overwhelming. Additionally, the rise of SIPs has made investing in mutual funds more accessible to retail investors, allowing for disciplined and regular contributions. So, if you are wondering which type of mutual funds should I invest in, let us take you through all your options and help you arrive at the best fit for your unique requirements.

Over-diversification of mutual funds

One common mistake investors make is over-diversifying their mutual fund holdings. While diversification is essential to mitigate risk, spreading your investments across too many funds can lead to dilution of returns and increased complexity without necessarily adding significant benefits. Instead, it is advisable to focus on building a well-rounded portfolio with a manageable number of funds that align with your investment goals and risk tolerance.

Different types of funds

When determining how many mutual funds to own, it is crucial to consider the types of funds available and their respective roles within your portfolio. Here are some key categories to consider:

• Equity funds: Equity funds invest primarily in stocks, offering the potential for higher returns but also greater volatility. Depending on your risk appetite and investment horizon, you may choose to allocate a portion of your portfolio to equity funds to capitalize on long-term growth opportunities.
• Debt funds: Debt funds, on the other hand, invest in fixed-income securities such as bonds and government securities. These funds are generally less volatile than equity funds and provide regular income through interest payments. Including debt funds in your portfolio can help diversify risk and provide stability, especially during periods of market volatility.
• Index funds: Index funds track a specific market index, such as the S&P 500 or the Nifty 50, and aim to replicate its performance. These funds offer low-cost exposure to broad market segments and are suitable for investors seeking market-matching returns without the need for active management. Incorporating index funds into your portfolio can help lower expenses and improve overall returns over the long term.
• Passive equity funds and passive debt funds: Passive equity and debt funds follow a passive investment strategy, aiming to mirror the performance of a designated benchmark index. These funds typically have lower management fees compared to actively managed funds, making them an attractive option for cost-conscious investors. By including passive funds in your portfolio, you can benefit from broad market exposure while minimising expenses.
• SIP: Systematic Investment Plans or SIP allow investors to contribute a fixed amount regularly into mutual funds, which can be of any of the above mentioned types, depending on your investor preference and requirements. This disciplined approach to investing helps in averaging out the cost of investments over time and can be particularly beneficial for long-term investors looking to build wealth gradually.

Now that you know the different types of mutual funds available for investment, you may wonder how to zero in on the right scheme for your needs. Further, how many of these schemes to add to your portfolio is also a valid cause for concern. The answer to these questions is quite simple – the ideal number of mutual funds to own depends on various factors, including your investment objectives, risk tolerance, return requirements and time horizon. Instead of focusing solely on the quantity of funds, it is advisable to prioritise building a well-diversified portfolio that encompasses a mix of equity, debt, index, and passive funds tailored to your financial goals. By striking the right balance and avoiding over-diversification, you can position yourself for long-term success in the ever-changing landscape of investing in mutual fund 2024.

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms  

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME RELATED DOCUMENTS CAREFULLY