HOW MANY FUNDS SHOULD YOU HAVE IN YOUR MUTUAL FUND PORTFOLIO?

Mutual funds have always been a preferred choice of investment for people all across the world. In India too, mutual funds are quite popular as an investment option. We all know that mutual funds offer us the benefit of diversification,professional management of funds etc . But, its not clear to a lot of people on the number of funds they should invest in.Should they invest in just 1 mutual fund scheme or should have more than 1 mutual funds in their portfolio? And if more than 1 then how many? Whats the reasonable number which offers an investor best value for his money?Well, the answer to this is that one should look at having more than one mutual funds for sure in their portfolio, as investing in just one mutual fund would expose them to the risk of concentrated investment. While mutual funds do invest in various stocks and are thus diversified to that extent, one also needs to invest in multiple schemes to ensure that their investments gets diversified also in terms of fund house managing the fund, the fund manager etc.
So whats the most ideal number? The most ideal number should be about 5-6 funds at the most for an investor looking to invest in mutual funds. One should look at having following 6 funds in their portfolio

1. Diversified equity fund - 2 funds

2. Tax saving Funds - 2 funds

3. Aggressive Equity fund - 1 fund

4. Income Fund - 1fund
1. Diversified Equity fund - Diversified equity funds invest their money in stocks of companies from various sectors . They also diversify their investment by investing in large caps, medium and small caps. Thus, these funds are well diversified and offer greater stability to the investor against market volatility. One can choose any 5 star rated equity diversified fund from morningstart.com or valueresearchonline.com. I suggest that one should have 2 well diversified equity funds in one's portfolio.Some of the well diversified equity funds are - HDFC Top 20, Magnum Contra
2. Tax Saving Funds (ELSS) - Tax saving is an importatnt aspect driving investments as such everyone needs to invest for the purpose of tax planning or tax saving, in India. Thus investing in ELSS or tax saving mutual funds is a must for most of us. To meet this goal one should invest in two ELSS funds which are the best in their class. As per valueresearchonline.com SBI Magnum Tax Saver and Sundaram BNP Tax Saver are among the best ELSS in India. One can choose any 2, 5 star rated ELSS fund.

3. Aggressive Equity Fund - While planning one's investment, one also needs to plan for wealth creation over a period of time along with safety of the investments. Aggressive equity funds provide an excellent opportunity to create wealth over a long period of time and as such one must have atleast one such fund in their portfolio. I would suggest Kotak Opportunities fund looking at its past performance.

4. Income Fund - Any portfolio without debt component is a skewed portfolio. To balance it out and make it more stable one also needs to have an income fund in their investment portfolio. Income funds invest in debt instruments and as such are relatively less volatile and safer. Among the best liquid funds is Canara Rebecco Income fund. One can choose any 5 star rated income fund.
These 6 funds will ensure that your portfolio is well diversified but not too diversified and cluttered as it can become with more funds. Also it will let you have better idea of your investments and its performance. tracking the funds performance becomes easier as well. It also does not have any exposure to any thematic fund and as such this is a better, balanced and safer approach to investing.