Author: Sheo Narayan - SEBI Registered Investment Adviser | Reg. No. INA000022844 | BSE Enlistment No. 2537 | IshaVasu.com
A Real-World Scenario
I recently came across a case involving a couple in their late 40s with a very large investment portfolio spread across 159+ mutual funds and several Portfolio Management Services (PMS).
Over the years, investments had accumulated through multiple financial relationships and recommendations. The intention was entirely understandable:
It is a belief shared by many investors — especially those who have been investing for a long time across multiple advisers, banks, and relationships. Each recommendation seemed reasonable in isolation. Together, they created something far more difficult to manage than anyone intended.
What Complexity Looks Like in Practice
Over time, what began as diversification had turned into complexity. The couple were dealing with:
| Challenge | What It Means in Practice |
|---|---|
| 📂 Numerous statements and documents | Tracking 159+ mutual fund folios across multiple AMCs means dozens of statements, CAS reports, and documents to maintain and reconcile every year. |
| 🔍 Many schemes to monitor | Each fund has a fund manager, an investment mandate, and a performance track record. Meaningfully monitoring 159+ schemes is practically impossible for any investor. |
| 🔄 Significant overlap in underlying holdings | Many large-cap and flexi-cap funds hold very similar companies in the top 10–20 holdings. Owning 20 such funds may provide far less actual diversification than it appears. |
| 🎯 Difficulty connecting investments to goals | Which fund is for retirement? Which is for the child's education? Which is a short-term holding? When investments accumulate without goal mapping, this clarity disappears entirely. |
| 📊 Difficulty understanding the portfolio as a whole | When no one can clearly articulate what the portfolio owns in aggregate — what sectors, what asset classes, what risk profile — the portfolio has become too complex to manage effectively. |
The Key Distinction — Diversification vs. Owning More
This case illustrates one of the most important and most misunderstood concepts in personal investing:
Think of it this way: if you order 10 different dishes at a restaurant, but they are all made from the same three ingredients — you have variety on the menu, but not variety in what you are actually eating. The same principle applies to mutual funds.
When multiple funds hold similar companies, sectors, or asset classes, the number of investments increases — but the actual diversification may not increase proportionately. You may own 30 large-cap funds and still be concentrated in the same 20–30 companies across all of them.
A Useful Financial Literacy Exercise
Regardless of how large or small your portfolio is, periodically asking the following questions is a valuable financial literacy habit:
- What do I own? — Can you list, in plain language, what your portfolio actually holds — which asset classes, which categories, which sectors?
- Why do I own it? — Was each investment a deliberate, considered decision — or did it accumulate through a recommendation, a bank relationship, or a tax-saving deadline?
- What underlying exposures do I have? — If you own five large-cap funds, are you actually diversified — or are you holding the same 30 companies five times over?
- Which financial goal does each investment support? — Retirement, education, emergency reserve, short-term need? If you cannot answer this for an investment, it may not be serving a clear purpose.
- Are there meaningful overlaps? — A portfolio with significant overlap in underlying holdings is not as diversified as the number of funds suggests. Understanding overlap is a key step toward genuine diversification.
What the Objective Should Be
Common belief: "More investments means better diversification and lower risk."
Reality: The objective is not "more investments." The objective is clarity, appropriate diversification, and alignment with financial goals. A well-constructed portfolio of 8–10 carefully chosen funds — each serving a distinct purpose — may provide better actual diversification, and far greater clarity, than a portfolio of 150+ funds with significant overlap and no goal mapping.
Common belief: "I have invested in many different funds — I am well diversified."
Reality: True diversification comes from owning meaningfully different underlying exposures — different asset classes, different market caps, different geographies, different sectors — not simply different fund names. The number of funds is a poor proxy for the quality of diversification.
The Bottom Line
More is not always more diversified. Sometimes, simpler is easier to understand — and easier to manage effectively over the long term.
A portfolio that you can clearly explain — what it owns, why it owns it, and how it maps to your goals — is far more valuable than a portfolio whose complexity has grown beyond your ability to understand or monitor.
Periodically stepping back to ask "what do I actually own, and why?" is one of the most productive financial literacy exercises any investor can undertake.
Educational & Informational Purpose: This article is intended solely for general financial education and information. It does not constitute investment advice, recommendation, solicitation or an offer to buy or sell any security or investment product. No specific security, mutual fund, PMS, asset allocation or investment strategy is recommended or endorsed. The case described above is presented in an anonymised, educational manner. Individual circumstances and portfolio details have been altered or generalised where appropriate. It should not be interpreted as a recommendation or assessment of any particular person's portfolio.
Risk Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Regulatory Disclosure: Registration granted by SEBI, enlistment with IAASB and certification from NISM in no way guarantee performance of the IA or provide any assurance of returns to investors. | Sheo Narayan — SEBI Registered Investment Adviser | Reg. No. INA000022844 | BSE Enlistment No. 2537 | ishavasu.com