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Summary: Most investors count their funds one day and find a number they can't quite explain. The standard advice is to consolidate. We think that advice, applied without thinking, can cost you more than it saves.
Count your mutual funds. Surprised by the number? Most investors would be. Portfolios in India simply accumulate. A fund bought because it topped last year's charts. Another from a new fund offer a distributor was pushing. A few SIPs started years ago and never reviewed. One day you count, and there are twenty-three.
If you are building from scratch, be deliberate about every fund you add. Beyond a handful, each new fund mostly duplicates what you already hold, and your money gets split so many ways that no single fund has the weight to matter.
But what if the collection already exists? The standard advice is brisk: consolidate. Cut it down to five or six. Sell the rest.
We think that advice, applied blindly, is an expensive mistake.
Here is what it misses. Every sale of a profitable equity fund hands over 12.5 per cent of your long-term gains in tax. If the funds you hold are good, selling a few merely to make the list shorter buys you nothing except a shorter list. You pay real money for tidiness. And tracking a dozen holdings today is a few minutes' work. A crowded portfolio of good funds is a cosmetic problem. Paying avoidable tax is a real one.
So should you never sell? No. Some funds do need to go: the long-term laggards, the expensive plans with cheaper twins. And beyond that sits a harder question. When you need money, for a goal or a sudden expense, which of your funds do you redeem? If everything you hold is good, the choice is hard, and picking wrong can trigger avoidable tax or knock your portfolio off balance. Most investors decide on impulse, when a simple, repeatable method would serve them better.
That is what Dhirendra Kumar and I are taking up at this month's Fund Advisor Live, on Saturday, 25th July at 12 noon. How many funds are enough when you are building. Why a crowded portfolio of good funds is often better left alone. And when you do need to sell, how to decide which fund goes first.
The session is for Value Research Fund Advisor subscribers, who will ask their questions live. If you own more funds than you can explain, and you are unsure whether to sell or stay put, this is a good week to join them.
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