A reader asks, “I wonder if you can write a blog post on the Risk of fund house concentration in one’s investment portfolio. I am a follower of Freefincal Finance university and use Robo Advisory to manage my investments. Hence you can assume that I follow asset allocation as prescribed by the tool, and invest sufficient money with a balanced view on returns (8.5%) and Inflation (7%)”.
“Currently I invest in PPFCP, Mirae Asset Emerging blue-chip fund for all my needs under different folios both in my name and my wife’s name. For debt components, it is largely PPF, EPF and PPCHF. No other debt funds for any long term goals. The emergency fund is parked in the Baroda liquid fund”.
“Now the overall corpus has grown to about 50 lakhs in Mutual funds spread across the schemes mentioned above ( PPFCF ~ 20 lakhs, Mirae ~ 21 lakhs, PPCHF ~ 10 lakhs). All investments were made through SIP over the last 3 years. If I continue this journey, It is likely that over the next 5 years each of these funds would likely swell up to 50 lakhs each. Is this very risky? This question came up after the Axis MF front running scandal”.
“Please consider writing an article on how one should diversify across fund houses or in other words What is the maximum investment amount I can keep in a single fund ( across all folios ). Thanks”.
unfortunately, the answer is subjective. What I am comfortable with, may not be suited for you. About 55% of my equity MF retirement portfolio is in Parag Parikh flexicap.
If you had asked me ten years ago, I would have said 55% is a bit too much, but over time our risk appetite changes.
If I am however not a fan of investing in different folios of the same active fund. If the fund underperforms then all goals will be affected. Might as well hold different funds for different goals and this naturally reduces the concentration risk of the overall portfolio.
I have seen investors with a much large portfolio than mine with a much smaller exposure per fund. The downside of this is the portfolio will have 15-20 or more funds. They are okay withholding so many funds so who are we to comment!
In our opinion, a portfolio of 2-3 funds per goal is enough to reasonably reduce AMC risk. Yes, with time the weight of each fund will increase. It is best to gradually get used to this.
If we set hard rules like 10% of the portfolio per fund or Rs. 25 lakhs per fund, it would become cumbersome to manage the portfolio with time. But being personal finance, to each their own. While we do not recommend it, if such rules make you sleep better at night then it is worth it even if the overall portfolio would start resembling an expensive index fund as the number of funds increases!
A related question is, “I invest only in Nifty and Nifty Next 50″. Is one fund per index enough?” Depends on your comfort level. If you hold one fund and the AMC doubles the TER or If the tracking error suddenly increases, then your entire portfolio will be affected. Maybe holding two funds per index is not a terrible idea.
If personal finance is personal then so is simplicity. We have to develop our own rules and live or die by them.
Do share if you found this useful
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 1000 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2800 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 675 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
My new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps