Ask Value Research

Should you invest in multiple mutual fund categories at the same time?

Let's understand how you can invest to avoid overlap in your mutual fund portfolio

Should you invest in multiple mutual fund categories at the same time?

Is it wise to invest in flexi cap, large and mid cap, and small cap funds simultaneously from the point of view of overlapping of portfolio? - Anonymous

If you are a nuanced investor, you can decide on your allocation across large-, mid- and small-cap funds and cherry pick funds to build a portfolio. Make sure to periodically rebalance your portfolio too, whenever required. However, this may be cumbersome and less tax efficient.

As an alternative, investing in flexi-cap funds would be a more hands-off approach since these funds can invest across market capitalisation. While fund level allocations may differ, this mutual fund category, on an average, invests 70-75 per cent in large caps with the rest invested in mid- and small-cap funds.

Therefore, you can simply invest in two-three flexi cap funds.

4 Million+ copies sold! Get investment insights, market guidance, fund analysis, data stories, case studies and more. Subscribe to our digital & print magazine - Mutual Fund Insight.

Subscribe Now

Since many flexi-cap funds have high exposure to large-cap stocks (and hence a high possibility of overlaps), investing in a separate large-cap fund doesn't make much sense. So, flexi-cap funds would do the needful.

For a more aggressive investor, a 10-15 per cent supplementary allocation to mid- and small-cap funds to derive extra returns can be recommended.

Click here to go to our Analysts' Choice section where you can pick funds for your different financial goals.

Suggested read: How many funds are needed to achieve adequate diversification?

Have a different question in mind? Ask us

Other Categories