Ideal Number of Mutual Fund Schemes: My learnings
Everyone seems to have an opinion on how many mutual fund schemes you should hold. "6 is ideal." "8-10 is the sweet spot."
I had 33. And for a while, I was outperforming the market.
Here's how it happened.
In 2021, I had 6 equity schemes. I wanted to invest more but in different schemes. So I looked at all the usual data - rolling returns, past returns, alpha, beta data to make informed decisions.
The problem I realized? This data describes the past. My returns were in the future.
So I decided to run an experiment. Pick 3-4 schemes per category (large-cap, mid-cap, small-cap, contra, focused). Allocate small amounts to each. Then watch which ones do a good job and remove the losers, reallocate to winners.
Seemed logical. And it worked right up until September 2024, when I had 33 schemes and was ahead of Nifty 500 by 3.53%.
Then the bull run ended.
All schemes started lagging. And I froze. Should I cut the underperformers now or wait for bounce back? I couldn't answer either question. I realized that my "selection model" - which sounded logical - was actually weak.
Lesson? In a bull run, almost everything works. There are no real losers to cut. You just keep adding. The losers I was waiting for never surfaced - and then all surfaced at once.
So I had to build a stronger framework. One that didn't depend solely on past data.
What I landed on: building my own views on the market (sectors, earnings, macro environment etc). Then find fund managers whose portfolios actually reflect that view. Allocate meaningfully to them. And keep one or two managers who don't align with the view, because I could be wrong.
That became my filter. Not "which scheme has the best 3-year return" but "which fund manager do I actually agree with right now."
It is a harder and more time consuming method than just screening past returns and other data. But necessary.
I went from 33 schemes to 14 by March 2026. Current XIRR: 14.19% vs Nifty 500's 11.14%. Alpha: 3.05%.
I also validated using a hypothetical scenario - what if I'd held all 33 schemes to today? In this case my XIRR would be 12% with alpha of 2.23% vs 3.05% So it tells me that the schemes I cut were the drag I couldn't see when the market was going up.
I realized that the number of schemes isn't the problem.
The question worth asking is: do you have a view on the market, and can you explain why you're holding each scheme?
If yes, then 14 schemes, 20 schemes, doesn't matter.
If no, then even 6 schemes are just as directionless as 33.
Curious what the views of more experienced investors is on this "ideal number of schemes" theory.