Less is more if diversified smartly!

Diversification is investing’s most overused cliché and its most misunderstood principle. “Don’t put all your eggs in one basket” is repeated so often that it’s lost all meaning. Yet the core idea remains sound: markets are unpredictable, and prudent investors must prepare for multiple outcomes. But how we diversify must evolve. For decades, mutual fund investors have followed a formulaic playbook—spreading capital across large-cap, mid-cap, small-cap, sectoral, and thematic funds. Add some international or passive funds, and you’ve ticked every conventional box. Yet portfolios built this way often end up more concentrated than intended—thanks to hidden correlations, overlapping holdings and the false comfort of quantity. Welcome to the era of  naive diversification. Quantity ≠ quality Investors often confuse more schemes with better diversification. However, holding 12–15 funds with similar benchmark stocks often leads to higher correlation and lower differentiation. Consider the data. A portfolio of 15 best-performing mutual funds delivered a 10-year median return of 15.4 per cent. But a smaller, sharply constructed portfolio of just five least-correlated schemes delivered 16.7 per cent, highlighting the