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In how many funds of the same category should one invest?

Ashutosh Gupta explains how one should decide about the number of funds to buy in the same category

Is it fine to buy four mutual funds of the same kind? For example, if I want to invest Rs 10,000 in ELSS, should I go for four different tax-saver funds or put it in a single fund?
- Neeti Srivastava

Well, you should look at it in the context of your overall investments and not just ELSS. I will explain with an example. Let's say this Rs 10,000 ELSS investment accounts for just about 20-25 per cent of your overall investments. Then even a single ELSS fund would be good enough because there is money moving into other funds as well. So on an overall portfolio basis, you would still be diversified even if you choose only a single ELSS fund.

But having said that, if ELSS accounts for a much bigger proportion of your overall investments or if these are the only investments that you are making, then perhaps you can add more than one fund. But even then, with your scale of investments, probably just about two ELSS funds should be good enough for you.

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