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How to Create BEST Mutual Fund PORTFOLIO 2025 ?
When it comes to building wealth through mutual funds, one of the most common questions investors ask is: How many mutual fund schemes should be in your portfolio? Whether you’re investing in large-cap, mid-cap, small-cap, flexi-cap, or multi-cap categories, understanding the ideal number of schemes is essential for maximizing returns and minimizing risks.
In this article, we’ll guide you step-by-step to help you create the best mutual fund portfolio, avoid common mistakes, and achieve your financial goals efficiently.
Why Investors End Up Holding Too Many Mutual Funds.
Most investors in India build their mutual fund portfolio based on recent returns. If a small-cap fund performs well in the last 1-2 years, people rush to invest in it, assuming it will continue performing similarly. However, mutual fund returns are cyclical. A fund that performs well today might underperform in the coming years.
Common reasons why investors accumulate excessive mutual fund schemes:
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Chasing recent high returns without understanding market cycles.
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Investing based on temporary market conditions (bear or bull runs).
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Switching funds frequently due to short-term underperformance.
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Investing in multiple funds from the same fund house.
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Over-diversifying in the name of risk reduction.
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Investing in NFOs (New Fund Offers) just because NAV is low.
Published July 28, 2025.
The Concept of Over-Diversification in Mutual Funds.
Remember, a single mutual fund scheme itself holds 50-100 stocks. If you’re investing in multiple funds across categories, your overall exposure will cover most of the top 500 stocks in the Indian stock market. This defeats the purpose of actively managed funds.
If you want exposure to a broad range of stocks with minimum cost, opting for index funds makes more sense. Index funds replicate the index and have a low expense ratio.
However, in actively managed funds, you pay a higher expense ratio with the expectation of better returns. Hence, your goal should be selective investing, not investing everywhere.
Ideal Number of Mutual Funds to Build the Best Mutual Fund Portfolio.
1️⃣ For Beginners:
Start with 1-2 index funds.
Large-cap index fund (like Nifty 50 or Nifty 100) is a great starting point.
If required, add a mid-cap or small-cap index fund over time.
2️⃣ For Growing Investors:
As your investment amount and market understanding grow:
1 Large Cap Fund (Actively Managed or Index)
1 Mid Cap Fund
1 Small Cap Fund
1 Flexi Cap or Multi-Cap Fund
Optional: 1 International Fund
Total: 3 to 5 Funds are sufficient for most investors.
3️⃣ For Large Investors:
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If your investment size is big, 5 to 6 funds are more than enough.
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Ensure minimum portfolio overlap (not more than 20-30% overlap between two funds).
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How Many Schemes Per Category?
| Category | Number of Funds (Ideal) |
|---|---|
| Large Cap | 1 Fund (or 2 Index Funds) |
| Mid Cap | 1 to 2 Funds |
| Small Cap | 1 to 2 Funds |
| Flexi/Multicap | 1 to 2 Funds |
| International | 1 Fund (Optional) |
If you prefer index investing:
Nifty 50 or Nifty Next 50 for Large Cap.
Nifty Midcap 150 Index Fund for Mid Cap.
Nifty Smallcap 250 Index Fund for Small Cap.
This setup gives you broad market exposure at a low cost.
How Many Funds From One AMC?
Avoid putting all your money in schemes from a single AMC (Asset Management Company). Maximum 1 to 2 schemes from the same fund house are enough.
To reduce fund manager risk:
Diversify across 2-4 different AMCs.
This protects your portfolio in case one fund house faces internal issues or poor management.
How Many Portfolios Should You Have?
One portfolio is sufficient for most investors. However:
If you have two distinct goals with different investment horizons and risk profiles (e.g. retirement vs. child’s education), you can maintain two separate portfolios.
Avoid creating more than two portfolios, as this adds unnecessary complexity.
What About Debt Funds?
Debt funds don’t depend on equity markets. For debt investments:
1 to 2 debt funds are sufficient for small investments.
2 to 3 debt funds for larger investments.
Focus on funds with AAA-rated portfolios for lower risk. There’s no benefit in over-diversifying debt investments.
Final Thoughts: Keep Your Portfolio Simple.
To build the best mutual fund portfolio:
Limit yourself to 3 to 6 mutual fund schemes.
Use index funds for broad exposure and simplicity.
In actively managed funds, avoid excessive overlap.
Choose schemes from different AMCs for diversification.
Remember, fewer funds with proper allocation deliver better returns than holding too many funds unnecessarily.
Frequently Asked Questions.
Q1. Can I invest in 10-20 mutual fund schemes?
👉 Not recommended. It leads to over-diversification and average returns. Stick to 3-6 schemes.
Q2. Are index funds better than actively managed funds?
👉 For most investors, index funds are cost-effective and simple. Actively managed funds work if chosen selectively.
Q3. How do I reduce the number of funds in my portfolio?
👉 Focus on core categories, choose one fund per category, and gradually exit underperforming or overlapping schemes.
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