Owning 10 Mutual Funds? Experts say don't rush to sell before checking these 4 things

Saurabh Jain, Chief Business Officer, Bandhan AMC, said: "My first advice would be: Do not immediately start removing funds. First put all 10 funds together and understand the portfolio they collectively create."

He recommends a structured four-step approach to reviewing a mutual fund portfolio.

1. Start with the investor: Clarify the financial goals, time horizon, liquidity requirements, and risk-return appetite.
2. Review asset allocation: Check the overall allocation to domestic equity, international equity, fixed income, commodities, and cash or liquidity.
3. Review diversification within each asset class: Within equity, examine large-, mid- and small-cap exposure, sectors, geographies, and investment styles. Within fixed income, review credit quality, maturity, and duration.
4. Check fund and security-level overlap: Identify funds that hold similar stocks, follow similar strategies, or perform the same role.

"The purpose is not automatically to reduce 10 funds to five. It is to ensure that each fund has a clear role and that the combined portfolio is aligned with the investor’s complete wealth-management objective," added Saurabh Jain.

The number of mutual funds an investor owns should not be the starting point of a portfolio review. Instead, the focus should be on whether the investments are appropriate for the investor's goals, risk appetite and investment horizon.

Jitendra Sriram, Senior Fund Manager, Baroda BNP Paribas Mutual Fund, said: "All portfolio reviews should start with defining / evaluating investment goals and the investor’s risk appetite. Number of funds should be an outcome of the assessment and evaluation of goals and risks for the investor. Investors should ask their advisors to drill down to the holdings of each MF portfolio to get a sense of portfolio overlaps if any. Various combination of MF portfolios can help reach investors reach their goals depending on their risk appetites and investment horizons."

A meaningful portfolio review requires investors to look beyond individual fund performance and understand how their investments function together.

"Here, the investor needs to understand what you own and why you own it, and not simply go fund by fund. I would suggest a comprehensive portfolio review starting with, firstly, understanding the purpose of each investment and the financial goal it is intended to achieve. Next, examine the underlying holdings to identify duplication across funds and assess whether the portfolio is adequately diversified across stocks, sectors and market capitalisations," said Shweta Shastri, CFP and founder at Finnora wealth studio.

"Then, evaluate the overall equity-debt allocation in line with the investor’s risk profile and time horizon, and review each fund’s performance against its relevant benchmark and category. Also, consider expense ratios, exit loads and the potential tax implications before recommending any changes," added Shweta.

Ultimately, having more mutual funds does not automatically translate into better diversification. A well-constructed portfolio is one where every scheme serves a distinct purpose.