How many mutual funds should I have in a portfolio? Does investing in as many mutual fund types as possible further de-risk my money? I have 20 lakh to invest.
I think instead of the number of funds, more important is to spread your investments over a period of time. Rs. 20 lakh is a very sizable part and may have taken many years for you to accumulate it or it may have come from the sale proceeds of an asset. You should think in terms of spreading it for a time period of over 15-18 months or two years. It is very important to de-risk your investments this way and build confidence in market-linked investments. This is because the moment you invest 20 lakh rupees and considering the volatile nature of the market, it can actually be very disturbing for a first-time investor. So, spread your investments over a long period of time so that you are able to de-risk yourself from catching a market high.
Coming to your question of the number of funds. Two or three funds should be enough and diversify. The reason is that diversification is crucial. So, invest in two-three multicap funds or maybe additionally one international fund that will get you a decent diversification. Those two-three multicap funds should be managed by different fund managers because it will also de-risk you from different styles that different fund managers have, which undergo some types of cyclicality. Some fund managers do well at some time, some fund managers don't do well at certain times.
So, two-three funds will be good enough and spreading your investments over time is important to spread your risk.