Is it harmful to have too many mutual funds?

Investing in mutual funds aims to generate returns that outperform inflation. That said, one should only have a limited number of mutual fund schemes in their portfolio. Investing in just a few mutual funds increases possibilities for a diversified portfolio, improved risk management, and wealth accumulation.

Further, adding more mutual funds to your current portfolio doesn’t improve it but lowers your predicted returns, sometimes even below the inflation rates.

Why is it harmful to have too many mutual funds?

When too many funds have the exact nature and goals, the overall portfolio’s profit is already offset by the low-return funds.

Reviewing the performance of your portfolio can become time-consuming and challenging as the number of funds rises, particularly with underperforming schemes.

What strategy can you use

Goal-based investing, which is all about selecting how to invest for each of your goals and having a time limit to attain them, is the key to effectively not overdo buying more mutual fund schemes.

These goal-based investing principles will assist you in navigating the minefield of mutual funds to invest in and achieve your financial objectives.

Examine several investment choices, such as equities, debt funds, index funds, and ETFs but based on your goals and time horizon. Investing in them will enrich and fill out your portfolio more than buying several mutual funds, especially ones of the same kind.

Look for the perfect combination of funds to help you maintain a healthy balance without worrying about losses if you are new to investing and are trying to play it safe.

Your knowledge of your risk tolerance, financial objectives, and preference for passive or active mutual funds will influence your choices.