Hey, everyone. Hope everyone is doing great. About 6 months ago I made a post regarding my long term investment strategy. Here’s what I am currently doing.
Current investment (monthly): 23.5k (have marked pointers on things that might need an explanation on why I’m doing that with power ex: ¹,²,³…)
- 6k ppf (tax saving)
- 6.5k elss mutual funds (tax saving. Split between 4 funds)
- 5k nifty 50 index funds (split between 2 funds. In future will mostly focus on this. 50% investment will be on index funds)¹
- 1k another index funds but this time bse 500 and nifty 500²
- 1k small cap
- 1k flexi cap
- 2k hybrid (2 funds)
- 1k another fund
Total mutual funds: 13
My funds number is a lot as somebody can tell so this is the question that I am having as of now.
From what I’ve seen online this much diversification is not required for mutual funds. Usually people recommend 4 or maybe 6 at max funds. There’s no bad thing in doing this it’s just a hassle (from what I am seeing online). Now back to the reason why I’ve this much diversification.
For tax saving: I’m trying to diversify to avoid risk. I might reduce sip on all funds and focus on one but is it a bad thing? Why diversification is bad in mutual funds? Even if they overlap. Unlike index funds they’re active (from what I know) and can change their investments overtime so from what I understood isn’t it a good thing to diversify almost any active fund?
1: for index funds we have a valid point that diversification is not needed. But I just picked the 2 biggest names to avoid tracking error. Also, expense ratio is also pretty much the same in both.
2: Reason why I also picked 2 other index funds that includes top 500 companies which very little people invest in is that I’m planning extremely long term (even 30+ years). So currently in India, most of the money is in top 50, but say if Indian market matures (like US for example), the money will be a bit more widespread than the top 50 only. I’m not 100% sure if this is how it works or if this is a good strategy but this is what I understood after doing a bit of research.
Other diversification is mostly to just reduce risk. Same reason because funds are active. Just to have somewhat everywhere. Hybrid and flexi cap will mostly cover it. Have also added a small cap to balance lesser risk with higher risk and more returns.
I’ll cut out on some funds (like the one I’ve mentioned as other funds) but the index funds (50 and 500), flexi cap (1 will work), Small cap (1) is what I’m currently thinking is a good long term strategy and something I might stick to on long term.
The reason for this much diversification currently is mostly because some people said I can still experiment a bit as I’m somewhat on the younger side.
Tax saving funds is something I’ll be invested on because there’s not much benefits regarding 80c or any tax saving benefits in general from my employer’s side. If I switch company and they offer something like EPF (I have an account from my old company) I’ll cut on the tax saver funds and will invest that back to index funds or other good funds.
Thank you!