“I Have 12 Mutual Funds… Am I Actually Diversified?”
Money Matters Clinic #4
Welcome to Money Matters Clinic
In the last clinic, we discussed a common beginner question:
Today, we're looking at what can happen after that journey begins.
One SIP becomes two.
Then three.
Then five.
Then a new fund because a friend recommended it.
Another because an app showed it as “trending.”
Another because it delivered great returns last year.
And suddenly...
You have 12 mutual funds.
But do you have a better portfolio?
Let's find out.
🩺 Patient Profile
(Name changed to protect privacy.)
Name: Rahul
Age: 38
Occupation: Senior IT Professional
Monthly Take-home Salary: ₹1.8 lakh
Total Mutual Fund Investments: ₹28 lakh
Number of Mutual Fund Schemes: 12
Monthly SIP: ₹55,000
Emergency Fund: 6 months of expenses
Health Insurance: Yes
Term Insurance: Yes
Financial Goals
🏠 Children's education
🧓 Retirement
🏡 Upgrade home in the next few years
💰 Long-term wealth creation
On paper...
Rahul looked like a disciplined investor.
He was investing ₹55,000 every month.
He had been investing for years.
His portfolio had grown significantly.
But there was one problem.
💬 The Question
Rahul asked me:
“I have 12 mutual funds.
My answer was simple:
“Before adding another fund, let's understand the 12 you already own.”
🔍 Symptoms
When we started reviewing the portfolio, we found something interesting.
Rahul had:
📈 4 equity funds bought for long-term wealth
📊 3 funds bought because of recent performance
🔥 2 funds recommended by friends
📱 1 fund selected through an investment app
🎯 2 funds that were originally started for specific goals
The portfolio had grown over time.
But there was no longer a clear structure.
Every new fund had been added for a different reason.
Some reasons were good.
Some were emotional.
Some were forgotten.
🩺 Diagnosis
Rahul had portfolio clutter.
Not necessarily a lack of diversification.
This distinction matters.
Diversification means:
Reducing excessive dependence on one investment, sector, company, asset class or strategy.
Portfolio clutter means:
Owning investments without a clear understanding of their role.
You can have:
3 well-chosen funds
and potentially have a more coherent portfolio than someone with:
15 overlapping funds.
The number of funds alone doesn't tell us whether a portfolio is diversified.
📊 Investigation
We started asking one question about every fund:
“What job is this fund doing?”
And the answers revealed a problem.
Two funds had very similar underlying exposure.
Three funds were serving almost the same broad equity role.
One fund was purchased mainly because of its recent performance.
Two funds had no clearly documented goal.
Suddenly, Rahul's 12-fund portfolio didn't look like 12 unique ideas.
It looked like several overlapping decisions accumulated over time.
🧩 The Portfolio Overlap Problem
Here's a simple example.
Imagine you own:
Fund A
Top holdings include:
Company X, Company Y, Company Z
Then you buy:
Fund B
It also owns:
Company X, Company Y, Company Z
Then:
Fund C
Again...
Company X, Company Y, Company Z
You technically own three funds.
But your portfolio may still have significant exposure to the same companies.
That's why:
Number of funds ≠ level of diversification.
💊 Prescription
I didn't recommend adding another mutual fund.
We went backwards.
And rebuilt the thinking process.
Step 1 — List Every Investment
No assumptions.
No memory.
Just facts.
Write down:
Fund name
Category
Current value
SIP amount
Goal
Investment horizon
Reason for owning it
This alone can reveal surprising things.
Step 2 — Give Every Fund a Job
For every fund, complete this sentence:
“I own this fund because __________.”
If you can't complete it...
That's a signal to investigate further.
An investment shouldn't remain in a portfolio simply because:
“I've had it for years.”
Step 3 — Map Funds to Goals
Rahul had three major goals.
🎓 Children's Education
🧓 Retirement
🏡 Home Upgrade
So instead of viewing 12 mutual funds as 12 separate investments...
We started viewing them as part of a goal-based portfolio.
The question became:
Which investment is helping which goal?
That created clarity.
Step 4 — Check for Overlap
Don't look only at the number of funds.
Review:
Category overlap
Underlying holdings
Sector concentration
Investment style
Asset allocation
The objective isn't necessarily to eliminate overlap.
The objective is to understand it.
Step 5 — Review Before You Add
Rahul originally came asking:
“Which new fund should I add?”
The better question became:
“Does my existing portfolio actually need another fund?”
Sometimes the best investment decision is...
not adding another investment.
📅 90-Day Treatment Plan
Month 1 — Inventory
✅ List all mutual funds.
✅ Record current values.
✅ Record SIP amounts.
✅ Write the purpose of each fund.
Month 2 — Diagnose
✅ Review category overlap.
✅ Review major holdings.
✅ Check asset allocation.
✅ Map investments to goals.
Month 3 — Simplify
✅ Identify unnecessary duplication.
✅ Review investments whose original purpose is no longer relevant.
✅ Decide whether any changes are appropriate.
And most importantly...
Don't make changes simply because a fund has recently underperformed.
Understand the reason first.
❤️ Clinic Note
Rahul didn't necessarily need fewer mutual funds.
He needed more clarity about the funds he already owned.
That's an important distinction.
Simplification shouldn't mean:
“Everyone should have only 3 funds.”
There is no universal number.
A portfolio should be appropriate for the investor's:
Goals + Time Horizon + Risk Profile + Asset Allocation + Strategy
The number of funds is a consequence.
It shouldn't be the objective.
📚 Lesson for Everyone
If you have multiple mutual funds...
Don't immediately ask:
“Which ones should I sell?”
First ask:
“What job is each investment doing?”
Then ask:
“Are multiple investments doing the same job?”
And finally:
“Does my overall portfolio make sense for my goals?”
That's a much better portfolio review process.
📝 Your Weekly Money Matters Prescription
Take your mutual fund statement today.
Write every scheme on a piece of paper.
Next to each one, write:
Goal: __________
Time Horizon: __________
Why I own it: __________
Role in portfolio: __________
If you can't answer these questions for a fund...
Don't panic.
Don't sell immediately.
Just mark it:
“Needs Review.”
That's your starting point.
🧰 Today's Clinic Tools
If this exercise made you realise that your financial portfolio could use more clarity, the Money Matters Hub can help you take the next step.
Inside the Hub, you'll find practical resources including:
📊 Financial Health Score
Understand the strength of your overall financial foundation.
📈 Goal-Based SIP Planner
Connect investments with actual financial goals.
📘 Money Matters Playbook
Explore 30 principles for building a clearer financial life.
📋 Personal Finance Dashboard
Bring your income, expenses, investments and goals into one place.
👉 Explore the Money Matters Hub: [Insert Your Hub Link]
💬 Continue the Conversation
Let's see how many investors can relate to this.
How many mutual fund schemes do you currently own?
A) 1–3
B) 4–7
C) 8–12
D) More than 12
And be honest...
Do you know the purpose of every fund you own?
Share your answer below. 👇
👨⚕️ Chandan's Prescription
A portfolio isn't diversified because it has many funds.
🩺 Next Week in Money Matters Clinic...
Clinic #5
“My SIPs Are Running at a Loss… Should I Stop Them?”
We'll investigate:
✔ What investors usually feel when markets fall
✔ When stopping a SIP can be a mistake
✔ When reviewing a SIP actually makes sense
✔ The difference between market volatility and a genuine change in your financial plan
✔ How to create a personal response plan for market corrections
✍️ Until Next Week...
Clarity before returns.
Discipline before wealth.
See you inside the next Money Matters Clinic.
— Chandan
🩺 About Money Matters Clinic
The cases shared in this series are inspired by real-life financial situations. Names, occupations, financial figures and identifying details may be changed to protect privacy. The purpose of this clinic is to educate, simplify personal finance and encourage better financial decisions. The content is educational in nature and should not be considered personalised financial, investment, tax or insurance advice. Mutual fund investments are subject to market risks. Please consider your goals, risk profile and circumstances before making investment decisions.
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