Investors diversify their mutual fund portfolios because they have different life goals and objectives that need to be achieved over various time periods.
Image credits: Freepik
Different asset classes
Requires investing in different asset classes such as equity, fixed income, and gold, or a combination. Portfolios need to be diversified across asset classes, different schemes.
Image credits: Pexels
One scheme, one purpose
Investors have more than one scheme in their portfolios because each scheme serves a different purpose.
Image credits: Pexels
What kind of fund for future?
For future expenses like children's education or a planned holiday, an equity savings fund may be suitable.
Image credits: Freepik
Long term goal
Target maturity funds can be used to save money for long-term goals, while gold funds act as a hedge against inflation.
Image credits: Freepik
Small cap funds
On the equity side, small-cap funds can generate alpha and help achieve goals that are 10 years away, while ELSS funds provide tax-saving benefits.
Image credits: Freepik
Specific themes
Investors looking for specific themes or international exposure can invest in technology funds, thematic funds, or geographically diversified funds.
Image credits: FREEPIK
How to reduce themes?
To reduce number of schemes in a portfolio, investors can check for overlaps with similar schemes. If there is high overlap, adding another fund may not provide additional returns.