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Problem of Plenty

Too many cooks spoil the broth. Your investments should be wary of that

I have been invested in Kotak 30, Reliance Growth and Reliance Vision for the last 10 months through the Systematic Investment Plans (SIPs). Should I consider a further extension of 10 months? Secondly, suppose I choose 10 different funds with SIPs for one year, how long do I need to continue?

There is no scientific logic to it, but what would be advisable is holding a few funds is useful in terms of diversifying across different kinds of investment styles. This is useful as you will be going across different fund families. If you have Kotak 30 and Reliance Growth, then that is good. If you add two more to your portfolio from different fund families and equity funds, you would achieve reasonable diversification and varying styles.

So, even if one or two fund managers are out of favour, your overall portfolio will still do well. With mutual funds you may be diversifying, but it will not be prudent to invest in 10 of them. All your funds hold stocks. By virtue of owning these 10 funds, there is a possibility that the underlying portfolio will be wildly diversified and wild diversification actually translates into a return somewhat like an index (Plus-minus something) and lacks focus. Monitoring will also become difficult in terms of intervention if you want to get out of something.

Therefore, it would be advisable to choose three-four equity funds and review your selection every year. If you do that and find that a fund which you chose for  some reasons, and these no longer apply, then it is time to not only stop your investment, but pull out your money and move out into the one which you like more. For example, Reliance Vision was a great fund about three years back and ever since, there has been a persistent decline in performance and off late it has proven to be a very average kind of fund. Reliance Growth still shows momentum and steam and has been able to guard the downside and also has been able to jump very well through the recent bull phase. So ideally, you should get three-four funds, keep an eye on them, and take corrective actions every year. That should be good enough.

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