Is Your SIP Portfolio Too Cluttered? Here’s How to Simplify It
Investing in mutual funds via Systematic Investment Plans (SIPs) is a proven wealth-building strategy in India. But many investors fall into the trap of over-diversification, piling up funds without realizing it hurts returns. So, how many mutual funds do you actually need for effective diversification? Let’s simplify.
The Downside of Owning Too Many Mutual Funds
A recent AMFI survey found 30% of SIP investors hold 5+ funds, leading to:
✔ Overlapping stocks – Multiple funds invest in the same companies, reducing real diversification.
✔ Higher costs – More funds = higher expense ratios, cutting into long-term gains.
✔ Tracking headaches – Managing dozens of SIPs is time-consuming and confusing.
How Many SIP Funds Are Ideal? (3-5 Funds Rule)
Experts agree: 3-5 well-chosen funds are enough for diversification. Here’s how to structure yours:
1. Equity Funds (2-3 Funds)
Avoid holding multiple funds in the same category. Instead, pick:
– 1 Large-Cap Fund (e.g., HDFC Top 100)
– 1 Mid/Small-Cap Fund (e.g., Axis Midcap Fund)
– 1 Flexi-Cap or Thematic Fund (e.g., Parag Parikh Flexi Cap)
2. Debt Funds (1-2 Funds for Stability)
Balance equity risk with:
– 1 Short-Term Debt Fund (e.g., ICICI Prudential Short-Term Fund)
– 1 Liquid Fund for Emergencies (e.g., SBI Liquid Fund)
3. Hybrid Funds (Optional for Hands-Off Investors)
Consider a Balanced Advantage Fund (BAF) like HDFC Balanced Advantage Fund for auto-adjusted equity-debt allocation.
5 Signs Your SIP Portfolio Needs Decluttering
🔴 You own 3+ large-cap funds (they likely overlap).
🔴 Underperformance persists due to diluted stock picks.
🔴 Tracking SIPs feels overwhelming.
🔴 Expense ratios are eating returns.
🔴 You’ve forgotten why you invested in some funds.
3 Steps to Simplify Your SIP Portfolio
- Audit & Merge – Use tools like Morningstar to check overlaps.
- Cut Redundancies – Keep the best-performing fund in each category.
- Rebalance Yearly – Adjust allocations based on goals and market shifts.
Expert Tip: Less is More
“Investors confuse quantity with diversification. A focused 3-fund portfolio often beats a messy 10-fund one.”
— Suresh Sadagopan, Certified Financial Planner
Key Takeaway
✔ Diversification ≠ Owning Every Fund
✔ 3-5 Funds (Equity + Debt + Hybrid) Are Optimal
✔ Regular Audits Prevent Clutter
Need help? Consult a SEBI-registered advisor to streamline your SIPs.
