It doesn’t help that you have nearly 300to choose from for your or SIP. The dilemma is not only which to pick for your but also to know when to stop adding. If your equity mutual fund has over 10 schemes, you have already tipped over the maximum limit. But what if all the you have picked perform well? Isn’t that reason enough to own them.
Not really. Here is what you need to understand about overand how to avoid it.
1. It is just duplicating what you already have
A typical equitywill have anywhere between 40-60 stocks across different sectors. Large-cap, large and mid-cap and multi-cap usually align with sectors that have a higher allocation in benchmark indices like Nifty and Sensex.
For example, a cursory glance throughof most will show that indeed financials is the most represented among sectors and it happens because financials is the largest weight in benchmark indices too. Some popular stocks within the sector will feature prominently in the top 5-10 stocks across most .
Moreover, now that SEBI has specified the investment universe for different categories, there are likely to be more similarities, especially in large cap and large and mid-cap. The weights in stocks can differ but the names will overlap.
It doesn’t help to keep adding the same exposure to your make sense considering your long-term goals. That will give you enough exposure to unique stocks which can contribute to long term growth.as there is no incremental advantage in terms of returns. What makes more sense is to pick 4-8 different which have distinct strategies and low overlap, and
It doesn’t help that you have nearly 300 diversified equity funds to choose from for your systematic investment plan or SIP. The dilemma is not only which funds to pick for your portfolio but also to know when to stop adding. If your equity mutual fund portfolio has over 10 schemes, you have already tipped over the maximum limit. But what if all the funds you have picked perform well? Isn’t that reason enough to own them.
2. It can pull down your potential long-term return
No singlecan top the performance chart each year. However, when you consider long term data there are which consistently deliver above average returns in different market cycles. This is the lot that you should pick from.
If you have too many stick to a handful of consistent performers, in the long run you will benefit from their capability rather than by adding other to the mix., at any point in time some may be doing well and others not so much, this will bring down your average return. If you
, in this specific context, helps to spread risk, so that if one is underperforming another may contribute positively. However, too many can dampen returns as now you run the risk of having too many underperformers at a point in time and duplication of style and constituents also means that you aren’t adding any incremental benefit to your .
So, the next time you think about adding a newto your or get tempted by that NFO, think again!