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Diversify, But Don't Over-diversify

Diversifying investments helps achieve good returns

I would like to invest Rs 20,000 in a SIP every month. Should I invest the amount in one scheme or in four different schemes?
-Rushi D. Vaidya


Ideally, you should diversify your investments between a few funds (the actual number depends entirely on the amount you are investing). This strategy ensures that your portfolio is not dependent on the performance of one single fund. However, one needs to avoid over-diversification as that would achieve nothing. For Rs 20,000 per month, it would be wise to opt for a maximum of three funds (assuming these are your only mutual fund investments). Consider well rated large- and mid-cap funds and a balanced fund. The latter would provide the debt component and reduce the portfolio's downside risk.