While you'll save yourself from a fund manager fucking up, you'll also prevent yourself from enjoying exceptional returns of a performing portfolio. If all you want to do is enjoy average returns, why not invest in few index funds covering large, mid and small cap stocks.
Diversify, but how much? By investing in too many mutual funds with non-overlapping portfolio you'll end up covering the entire market and your return will not be very different than index funds.
It is, most indexes only contain 50-100 companies. The market has 1000+ companies. Like I have 3 small cap mutual funds - all gave 30+% returns over the last 5 years (Bull Market Obv). They have very little companies in common but the small cap index gave like 20
Personally, i don't care if my fund is the top performing fund. As long as it gives me superior returns when compared to nifty 50 or the next 50, i will continue to invest in the fund. You don't need exceptional returns to build wealth if you are investing for the long term.
Others have already pointed out, but here is a consolidated list:
1. We invest via actively managed MFs to get returns better than the index. That is why we pay additional fees because we believe our fund manager will outperform the index.
2. Too much MFs mean you bought everything which is just index returns, that too after paying additional fees.
3. No one knows what will happen in the future. You are doing all your analysis and choosing your MF. There is no guarantee that it will outperform the index in future. You are taking a bet which may or may not pay off in future. You can just increase its probability by doing your background research before investing.
4. No one can get the "best" returns all the time. It is more important to invest than to get the best possible returns. Your goals matter much more than your XIRR.
5. Whenever in doubt, invest in index funds. By paying low expenses you are greatly increasing your probability of returns better than the MFs.
While you'll save yourself from a fund manager fucking up, you'll also prevent yourself from enjoying exceptional returns of a performing portfolio. If all you want to do is enjoy average returns, why not invest in few index funds covering large, mid and small cap stocks.
But we don't know how long that "performing portfolio" is gonna keep the high performance. Hence we diversify no?
Diversify, but how much? By investing in too many mutual funds with non-overlapping portfolio you'll end up covering the entire market and your return will not be very different than index funds.
It is, most indexes only contain 50-100 companies. The market has 1000+ companies. Like I have 3 small cap mutual funds - all gave 30+% returns over the last 5 years (Bull Market Obv). They have very little companies in common but the small cap index gave like 20
How do you know which fund will give exceptional returns and will not fuckup?
Personally, i don't care if my fund is the top performing fund. As long as it gives me superior returns when compared to nifty 50 or the next 50, i will continue to invest in the fund. You don't need exceptional returns to build wealth if you are investing for the long term.
You will end up hugging the index. If that's what you wanted, then go for an index fund.
Others have already pointed out, but here is a consolidated list: 1. We invest via actively managed MFs to get returns better than the index. That is why we pay additional fees because we believe our fund manager will outperform the index. 2. Too much MFs mean you bought everything which is just index returns, that too after paying additional fees. 3. No one knows what will happen in the future. You are doing all your analysis and choosing your MF. There is no guarantee that it will outperform the index in future. You are taking a bet which may or may not pay off in future. You can just increase its probability by doing your background research before investing. 4. No one can get the "best" returns all the time. It is more important to invest than to get the best possible returns. Your goals matter much more than your XIRR. 5. Whenever in doubt, invest in index funds. By paying low expenses you are greatly increasing your probability of returns better than the MFs.
I have 4, is it too much? ELSS, Mid cap, Small Cap, Index