Mutual Funds

Your Fund Portfolio

K Venkatasubramanian | Updated on October 12, 2014


I wish to know about the optimum number of funds that I can have in my portfolio. Would it be alright to hold 4-5 large cap funds and four-five schemes from the mid-, small- and multi-cap categories?

Shavez Abbasi

There are no ‘hard and fast’ rules about the number of schemes that you can hold in your portfolio. But in general, four-five schemes across categories and fund houses are expected to provide adequate diversification. So ideally you should not be holding four-five funds in each category! That way, you would have 10 schemes , which can make it difficult for you to monitor their performance. Also by having too many funds, you will be spreading too thin and beyond a point, diversification will also be limited as fund houses chase the same set of stocks. You need to have a balanced portfolio. The number of schemes that you can invest in each of the categories would depend on your age, risk-appetite and duration of financial goal.

Early on in your investing life, you can allocate more to large-cap funds. As you gain experience, you can alter your portfolio, keeping in mind the factors mentioned earlier. So, start with large-cap funds. Later on, once you gain greater comfort with investing in the market, you must add multi- and mid-cap schemes. .

You must also have specific financial goals and invest towards them with a horizon of at least five-seven years.

I have been investing in ICICI Pru Tax Plan through the SIP route, which has a three-year lock-in period. I would like to start another SIP in a mutual fund for tax saving. Should I continue with same fund or should choose any other plan? What would be the tax implication on redeeming the units after three years?

BP Gupta

You have chosen a quality fund for tax saving purposes. ICICI Pru Tax Plan has delivered well across market cycles over the long-term. For tax saving purposes, one scheme would suffice. Explore other avenues such as PPF, FDs and NSC for your tax-saving investments. You can park the additional sum that you wish to invest in ICICI Pru Tax Plan itself. If you are insistent about another scheme, Franklin India Taxshield is another proven performer.

When you make systematic investments in equity-linked saving schemes, each instalment is locked for a period of three years. So if your SIP runs for a three years, your last instalment would be tax-free at the end of six years.

Any withdrawal before the lock-in period would mean that the gains are treated as short-term and taxed accordingly. The tax benefits that you had availed of by investing in these schemes would also be reversed.

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Published on October 12, 2014

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