How many flexi-, mid- & small-cap funds should the rich own?

Summary: More funds don’t always mean more safety; sometimes, they just water down your winners. Find out why wealth can quietly make your portfolio… ordinary. There’s a special kind of confusion that only money can buy. Not “how do I pay my bills?” kind, but the “I have Rs 1 crore, what now?” kind. For most people, investing begins with the need for survival. Build an emergency fund, buy insurance, save for the future. But once those boxes are ticked and your finances finally feel comfortable, a strange restlessness sets in. The pursuit of growth becomes a quest for perfection. The irony of wealth is that it doesn’t bring peace; it brings second-guessing. You start asking whether you could be doing better, whether you should own more funds, more categories, more sophistication. That’s when portfolios start to grow sideways instead of forward. The rich man’s diversification dilemma As the corpus expands, so does the temptation to diversify endlessly. A large portfolio feels incomplete without a few more names added to it. More funds seem to promise more safety, and at the very least, they look impressive. But a closer look at what’s inside these funds tells a different story. Large-cap and flexi-cap schemes often hold nearly identical portfolios. The overlap between the two categories stands at around 48 per cent, meaning half of what you own in one fund probably already exists in another. What seems like variety is often repetition. Ten funds do not necessarily spread your risk better than six if they all own HDFC Bank, Reliance Industries, Infosys or ICICI Bank. During market swings, they rise and fall together, delivering the same experience dressed in different labels. So while the number of funds may grow, the protection does not. This is diversification in form, not in substance. When diversification starts hurting performance Diversification is important, but only up to a point. The first few funds add balance risk and improve your returns. But adding too many can actually hurt performance. Here’s why. Every time you add a new fund, your money gets split into more parts. The top-performing funds — the ones really driving your returns — start getting a smaller share of your total portfolio. Take a look at the table below. It shows what happens when you keep adding new funds in the same category — flexi-cap, mid-cap and small-cap — one by one. When more funds mean less gain Each new ‘best’ fund trims your top performers’ weight — and your portfolio’s overall return with it Number of funds Flexi cap (%) Mid cap (%) Small cap (%) 1 21.6 20.7 24.5 3 19.8 20.5 23.3 6 18.4 19.9 22

This article was originally published on November 11, 2025.