We came across a few clients with as many as 40 to 50 mutual fund schemes in their investment portfolio recently. These investors believed that holding too many funds helps in diversification. I believe most investors end up with too many funds because they do not have a financial plan in place. They do not save or invest per their goals, and end up investing in a haphazard manner.
Diversification is good, but too much diversification is harmful. Holding too many funds makes it difficult and time consuming to monitor and track the performance on an ongoing basis. Also, it becomes difficult to track changes in the investment objective or style as well as a change of the fund manager. One may even tend to ignore the underperforming schemes and continue to hold them as it becomes difficult to spot them in a large portfolio.
