Too Many Mutual Funds vs Too Few

Last month, an NRI in our WhatsApp community shared his portfolio screenshot. He had 23 mutual funds. His monthly SIP was just ₹35,000.

When we asked why so many funds, his answer was honest: "I thought more funds meant more safety."

He's not alone. At Belong, we've reviewed hundreds of NRI portfolios. The pattern is consistent. Some have 15+ funds they can barely track. Others have just one fund and wonder why returns feel stagnant.

Both extremes hurt your wealth.

This guide will show you the right balance. You'll learn how many mutual funds you actually need, how to spot dangerous overlap, and how to structure a portfolio that grows without the chaos.

Why NRIs End Up With Too Many Funds

Living abroad creates unique pressures. You hear advice from family in India. You see a "top performing fund" on a financial website. Your NRE bank relationship manager suggests yet another scheme.

Each time, you add one more fund.

Before you know it, your portfolio looks like a collection rather than a strategy.

Here's what happens in practice:

The WhatsApp forward effect: Someone shares a "best mutual funds" list. You invest in all five. Next quarter, another list arrives. You add three more.

The NFO temptation: New Fund Offers (NFOs) come with compelling stories. A China-focused fund. A manufacturing theme. A consumption play. Each sounds unique. SEBI data shows that India has over 1,400 mutual fund schemes. Fund houses keep launching more.

The fear of missing out: When one category performs well, you feel compelled to own it. Large-cap is up? Add a large-cap fund. Mid-caps rallying? Add another. Small-caps booming? Can't miss that either.

The result is a bloated portfolio where you own the entire market multiple times over.

👉 Tip: Before adding any new fund, ask yourself: "Does this serve a specific goal that my existing funds don't cover?"

The Hidden Danger: Portfolio Overlap and Diworsification

Here's a term worth remembering: diworsification. It's what happens when you think you're diversifying but actually just duplicating.

A typical equity mutual fund holds 50 to 70 stocks. If you own 10 equity funds, you're technically holding exposure to 500+ stocks. But here's the catch. Research from multiple sources shows that around 30% of holdings across similar category funds overlap.

That means you're not spreading risk. You're concentrating it while paying multiple expense ratios.

Real example:

Let's say you hold:

  • HDFC Large Cap Fund
  • Mirae Asset Large Cap Fund
  • SBI Blue Chip Fund

All three likely have significant positions in Reliance Industries, ICICI Bank, HDFC Bank, and Infosys. These are among the top 100 stocks by market cap, and SEBI mandates that large-cap funds invest at least 80% in this universe.

When markets fall, all three funds fall together. When Reliance drops 10%, it impacts all three holdings. Your "diversified" portfolio behaves like a single concentrated bet.

How to check overlap:

Several free tools help you spot this problem:

Run your funds through these before your next review.

👉 Tip: If two funds show more than 40% overlap, consider keeping only the better performer.

What Happens When You Have Too Few Funds

The opposite extreme also hurts returns.

Some NRIs put everything into one fund. Maybe a flexi-cap their cousin recommended. Or a balanced fund their bank suggested.

Single-fund portfolios have real risks:

Fund manager risk: Even the best managers go through rough patches. A single manager's bad year becomes your entire portfolio's bad year.

Style concentration: Every fund has a bias. Some lean toward growth stocks. Others prefer value. If your single fund's style falls out of favor, you feel the full impact.

Limited exposure: One fund simply cannot capture the breadth of opportunities across asset classes, market caps, and geographies.

Goal mismatch: Different financial goals need different treatment. Your retirement corpus shouldn't sit in the same fund as your emergency buffer.

A single fund is like putting all your eggs in one basket, then handing that basket to one person.

The Right Number: What Research Actually Shows

So what's the magic number?

There isn't one universal answer. But research and practical experience point to a clear range.

The expert consensus:

Source
Recommended Range
1-2 funds per category
4-5 different types
SEBI-registered advisors
3-8 total funds

Our recommendation for NRIs:

For most NRIs with portfolios between ₹10 lakhs to ₹1 crore, 4 to 7 well-chosen mutual funds provide adequate diversification without unnecessary complexity.

Here's the logic:

  • 3 funds minimum: Covers basic asset class diversification (equity, debt, hybrid)
  • 5 funds ideal: Adds market cap variety and possibly international exposure
  • 7 funds maximum: Allows for goal-specific allocation without tracking nightmares
  • Beyond 8: Diminishing returns kick in. You're likely duplicating rather than diversifying.

The number should scale with your investment amount:

Monthly SIP
Suggested Funds
Under ₹20,000
2-3 funds
₹20,000 to ₹50,000
4-5 funds
₹50,000 to ₹1 lakh
5-6 funds
Above ₹1 lakh
6-7 funds

Spreading ₹10,000 across 10 funds makes each holding too small to matter.

👉 Tip: Use Belong's Mutual Funds Explorer to compare fund options before deciding.

How to Structure Your Portfolio by Goals

The smartest approach isn't picking a random number. It's aligning funds with specific financial goals.

Goal-based allocation framework:

Short-term goals (under 3 years):

  • Emergency fund
  • Upcoming travel or major purchase
  • → Use: 1 liquid or ultra-short duration debt fund

Medium-term goals (3-5 years):

  • Child's higher education fees
  • Down payment for property
  • → Use: 1 hybrid or balanced advantage fund

Long-term goals (5+ years):

Tax saving:

  • Section 80C benefits
  • → Use: 1 ELSS fund (if applicable)

This structure gives you 4-6 funds, each serving a clear purpose. When you review performance, you know exactly what each fund is supposed to do.

Sample portfolio for a UAE-based NRI:

Goal
Fund Type
Allocation
Emergency buffer
Liquid fund
10%
Medium-term safety
Hybrid fund
20%
Long-term growth
Flexi-cap fund
30%
Growth with risk
Mid-cap fund
20%
Global diversification
20%

Five funds. Clear roles. Easy to track.

The NRI Advantage: GIFT City Mutual Funds

Here's something most articles miss.

For NRIs, GIFT City mutual funds offer unique benefits that can simplify your portfolio while improving returns.

Why GIFT City funds matter:

  1. No capital gains tax: Under current GIFT City regulations, NRIs and OCIs pay zero capital gains tax on redemptions
  2. USD denomination: Invest directly in dollars without currency conversion losses
  3. Full repatriation: No RBI approvals needed for taking money out
  4. Professional management: Same AMCs you trust, operating in an IFSCA-regulated zone

Instead of holding 5 different rupee-denominated funds, you might achieve similar diversification through 2-3 GIFT City options.

Consider these GIFT City funds available on Belong:

The tax efficiency alone makes this worth exploring.

👉 Tip: Compare GIFT City mutual funds with offshore funds to understand the cost advantage.

Signs You Have Too Many Funds

How do you know if your portfolio needs pruning? Watch for these warning signs:

1. You can't name all your funds from memory If you need to log in just to remember what you own, that's a red flag.

2. Multiple funds in the same category Three large-cap funds isn't diversification. It's redundancy.

3. Your returns track the index exactly When your "diversified" portfolio matches Nifty 50 perfectly, you're essentially paying active fund fees for passive index performance.

4. Small SIP amounts spread thin ₹500 SIPs across 15 funds won't build meaningful wealth anywhere.

5. You keep forgetting to review Complex portfolios get neglected. Simple ones get monitored.

6. Overlap exceeds 50% Use an overlap checker. If two funds share more than half their holdings, one needs to go.

How to Consolidate Without Triggering Tax Problems

Reducing fund count isn't as simple as redeeming everything. For NRIs, tax implications need careful handling.

Step-by-step consolidation:

1. Check holding period Equity funds held over 12 months qualify for long-term capital gains. Under the Union Budget 2024 rules, LTCG above ₹1.25 lakh is taxed at 12.5%.

2. Identify overlap first Remove the weaker performer among overlapping funds. Keep the one with better risk-adjusted returns.

3. Stagger redemptions Don't redeem everything in one financial year. Spread across 2-3 years to stay within the ₹1.25 lakh LTCG exemption limit.

4. Reinvest strategically Move redeemed amounts into your chosen consolidated funds. For UAE NRIs, GIFT City options provide tax-free reinvestment.

5. Update your KYC Ensure your mutual fund KYC is current before making any major redemptions.

The DTAA advantage:

If you're based in the UAE, the India-UAE Double Tax Avoidance Agreement limits capital gains tax exposure. Many NRIs don't claim these benefits. You should.

👉 Tip: Use Belong's NRI Tax Filing service if consolidation creates complex tax situations.

Building Your Ideal Portfolio: A Practical Framework

Let's put everything together with actionable steps.

Phase 1: Audit your current holdings

  1. List every mutual fund you own
  2. Note the category (large-cap, mid-cap, debt, etc.)
  3. Check investment amount and current value
  4. Run overlap analysis using free tools

Phase 2: Define your goals

  1. Emergency fund (3-6 months expenses)
  2. Short-term needs (1-3 years)
  3. Medium-term goals (3-7 years)
  4. Long-term wealth creation (7+ years)
  5. Retirement planning

Phase 3: Map funds to goals

Assign each goal one fund. Maximum two for long-term goals.

Phase 4: Eliminate redundancy

If you have multiple funds serving the same goal in the same category, keep only the best performer.

Phase 5: Fill gaps

Missing debt allocation? Add one fund. No international exposure? Consider a GIFT City global fund. Tax saving needed? One ELSS covers it.

Phase 6: Set a review schedule

Quarterly review is sufficient. Don't tinker monthly.

Common Mistakes NRIs Make With Fund Count

Beyond just the number, watch out for these errors:

Chasing past performance Last year's top fund rarely repeats. Historical returns don't guarantee future results.

Ignoring expense ratios Owning 10 funds with 2% expense ratio each eats into returns. Direct plans have lower costs.

Forgetting debt allocation Many NRIs go 100% equity. When markets crash 30%, the emotional impact leads to panic selling.

Not accounting for currency risk Rupee depreciation affects your real returns in dirham or dollar terms. GIFT City funds hedge this naturally.

Mixing investment and insurance ULIPs shouldn't count as mutual fund allocation. Keep them separate.

Neglecting nomination From June 2025, SEBI made nomination mandatory. Missing this freezes your funds for your family.

SIP vs Lumpsum: Does Fund Count Change?

Whether you invest through SIP or lumpsum doesn't change the ideal fund count. But it affects how you spread investments.

For SIP investors:

  • Start with fewer funds (2-3)
  • Add new funds only when SIP amount increases substantially
  • Avoid starting multiple small SIPs that become hard to track

For lumpsum investors:

  • Diversify across funds from day one
  • Consider staggered deployment across 3-6 months
  • Use hybrid or balanced funds for automatic asset allocation

The principle remains: fewer well-chosen funds beat many mediocre ones.

👉 Tip: Calculate your SIP returns using our tools before committing.

When to Add a New Fund

Sometimes adding makes sense. But only if:

  1. You have a new financial goal that existing funds don't serve
  2. Your investment capacity has increased significantly (doubled or more)
  3. You want asset class exposure you currently lack (international, gold, debt)
  4. An existing fund has consistently underperformed its benchmark for 3+ years

Adding for any other reason usually means diworsification.

The Minimum Viable Portfolio for NRIs

If you're just starting or want the simplest possible approach, here's what works:

Two-fund portfolio:

  • 1 Flexi-cap fund (equity exposure across market caps)
  • 1 Hybrid aggressive fund (built-in debt allocation)

Three-fund portfolio:

  • 1 Large-cap index fund (stable core)
  • 1 Flexi-cap or mid-cap fund (growth engine)
  • 1 Liquid fund (emergency buffer)

Four-fund portfolio:

Any of these structures beats a 15-fund mess.

Next Steps

The right number of mutual funds isn't about collecting more. It's about holding fewer, better-aligned investments that actually grow your wealth.

If you're unsure where to start, here's what we suggest:

  1. Check your current portfolio for overlap using free tools
  2. Join our WhatsApp community where NRIs discuss portfolio strategies daily
  3. Explore GIFT City mutual funds for tax-efficient alternatives
  4. Download the Belong app to compare options and start investing

Our team at Belong has helped many NRIs simplify their portfolios. If you have questions, the community is always ready to help.

Sources: