Should You Split Money Between Mutual Fund Schemes Or Stick To One?

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Investors often ask the question: Should I split money in many mutual funds or stick to just one? The answer to that is never easy and depends on your risk appetite, your age group, amount of money etc. Now let us analyze each aspect separately.

Quantum of funds

If you are planning to invest large sums in lumpsum, say of Rs 5-10 lakhs, it is advisable that you split the same between 2-3 mutual fund schemes at the very least.

Should You Split Money Between Mutual Fund Schemes Or Stick To One?
Study the ratings accorded by Crisil, which tends to rate mutual fund schemes based on various parameters.

There's no point in placing large sums in a single mutual fund scheme and it is advised to split between different mutual fund schemes.

This is simply because every mutual fund has a portfolio that is different and skewed in favor of certain stocks and industry. Let's say there is a Mutual Fund scheme, which has invested heavily in metal stocks. Now, if you had invested in this mutual fund scheme, your returns would certainly be low, as metal stocks have crashed. Heaving said that In India, most of the diversified mutual funds have bulk of their portfolio either in IT, Pharma or Banking. The above was just an example.

Balance between equity and debt

Do not park all your money in equity mutual funds as they are risky. This especially would depend on your age. If you are an individual who is retired, bulk of the amount or even all of your amount should be parked into debt instruments, because they are rather safe. Your penchant to take risk after retirement is greatly reduced.

If you are a young individual, say in the age ground of 25-40, you can park substantial amounts in equity, because you have the ability to take the risk. Having said that a portion of your money can still be placed in debt mutual funds.

In any case, deciding on splitting your money in various mutual fund schemes would depend on the amount, your age and risky taking ability.

Read more about: mutual funds, crisil
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