How many mutual funds should I invest in?

Oct 10, 2022
Author: Ajit Dayal

"How many mutual funds should I invest in?" is an important question which deserves a well-thought-out answer. But before we find the answer to this 64-lakh question, let us see if answers to other questions will guide us to solve this vexing problem of "How many mutual funds should I invest in?".

Let me ask you the following:

  1. How many cars do you wish to buy?

    For many families, the answer will be 'One.' Possibly 'Two' if the spouses are both working and there is a child to be dropped off at school, sports classes, or music lessons. The response is based on need and affordability. Estimates have shown that it costs five times the initial cost of the car to maintain a car while you own it and use it. Even if you do not use the car there is a certain minimum maintenance cost to keep it: insurance, maintenance, cleaning...

  2. How many pairs of jeans do you wish to purchase?

    A confession here. I may possess eight pairs of jeans. But I have three pairs that I wear for everyday use and another two pairs for when I 'go out.' The other three pairs seem to waste away in the cupboard. Luckily, there is no recurring cost to owning the idle three 'extra' pairs of jeans. But, yes, I did waste time and money on the three pairs of jeans that I do not use.

  3. How many pairs of shoes do you wish to have in your shoe rack?

    While you work that out, let me share the details of my show collection. For work, two black pairs. For going out, I have three. For walking and sports, I have two pairs. For travel in winter to places where it may snow, I have two pairs of heavy shoes. I use all my shoes since I move around. Nine pairs sound like a lot, but it is what I need for all my various activities.

But what has this got to do with "How many mutual funds should I invest in?"?

Well, quite a bit.

What is a mutual fund?

The basic premise of a mutual fund is that a fund manager, an individual with a degree and a qualification, will take your money - pooled into a common pot - and invest it in securities on your behalf. The securities may be equity shares or stocks which do not give any fixed returns - or the securities invested by the fund could be in debt or fixed-income instruments which - as the name suggests - give you a defined rate of return. There are mutual funds that can also invest in gold or a portfolio of real estate projects (Real Estate Investment Trusts of REITS).

To manage your savings in these pooled trusts, the fund managers charge a fee. A fund with a Total Expense Ratio (TER) of say 1.25% means that, out of every Rs 100 that you invest in the mutual fund Rs 1.25 is paid every year to the mutual fund house whose product you invested in. Equity mutual funds have a higher potential for better returns than debt mutual funds. As such, equity mutual funds have a higher TER of 0.25% to 1.50% compared to debt mutual funds that may have lower TERs of 0.10% to 0.75%.

The question of "How many mutual funds should I invest in?" is three sub-questions:

  1. How many equity mutual funds should I invest in?

  2. How many fixed-income funds should I invest in?

  3. How many gold savings funds should I invest in?

For equity mutual funds, a blend of 5 to 7 mutual funds across the broad categories of large cap, mid cap and small cap funds should give you sufficient exposure.

For fixed income funds, I urge individuals who are not corporate treasures and are not tracking what the Reserves Bank of India does every day to invest solely in Liquid Funds: they are safe and give a steady though low return. One Liquid Fund is fine.

Gold is a commodity, so investing in one gold fund - which does not play the markets via derivatives and invests directly in the underlying gold bars - is good.

The answer to the question "How many mutual funds should I invest in?" is 5 or 7 + 1 + 1 = 7 to 9.

Even if you jazz up the portfolio for some spice (like adding an International Fund or a Dynamic Bond Fund) a range of 8 to 12 mutual funds should be a comfortable holding size.

Unlike a car, there is no extra burden of buying more mutual funds.

Unlike my purchase of jeans, all the mutual funds you invest in are working for you and being useful. Like my shoes, each mutual fund has a purpose and helps my portfolio move from A to B; from where I am today to where I wish to be. The shoes one buys are for a specific purpose and objective to suit your needs. If you do not have an office to attend, you do not need two pairs of formal black shoes. If you love playing different sports, you may need different kinds of shoes for different sports...

But which of the hundreds of mutual funds should I select for my basket of 7 to 9 mutual funds?

And how much money should I invest in each mutual fund?

You have two choices here:

  • has a database and a range of reports that you can subscribe to and, using this subscription, guide yourself to creating a portfolio which will work best for you; or

  • Click on to see how they have built a tool for you to make your own investments in best of class mutual funds using their 12-20-80 easy-to-understand tool.

Why 12-20-80 (baaraa, beess, aur assi) is all you may ever need.

12-20-80 is transparent and honest and guarantees you a direct connect between you and your money.

You can see what the cost of this portfolio is - and what historical returns have been.

You can personalize the solution to fit your precise objective.

The Quantum Mutual Funds 12-20-80 (baaraa, beess, aur assi) solution is the base suggestion - which you can modify as you see fit. This one-click solution cuts all the noise that you hear on TV channels, all the chatter on the internet, and will help you implement your personalised needs. There is no financial guru you need to pray to, no need to attend any dinner party to hear loud voices and there is no interpreter required - a few minutes of your time and you are on your way.


The basic tenets of building a simple and powerful portfolio in a high-speed 5G world are:

  1. There must be diversification across asset classes (see 12 20 80; baara; bees aur assi below but the base case suggested allocation is 12 months of your expenses in the safe liquid fund and then the balance is 80% in equity mutual funds and 20% in gold; and you can modify this to levels that make you feel comfortable);

  2. Investors must own various kinds of equity mutual funds - investors must invest in a diverse range of investment styles: small cap, mid cap, large cap, blue chip, growth, value, ESG, etc. And though these funds can all be from the same fund house - with different fund managers managing each of these styles. No fund manager should fool you: each of these equity 'styles' needs a different mindset and skill set. A fund manager of long-term value fund cannot be expected to do satta in small-cap momentum and produce consistent performance over longer periods of time;

  3. Having one hundred equity mutual funds in your portfolio sounds intuitively silly. It is like having a boat with many windows: chances are that in a storm some windows will break and require all your attention. Having 1 to 3 sounds risky. The answer is somewhere in the 8 to 12 range.

For my portfolio, I have followed a balanced path of investing for an optimistic future outcome - while ensuring I have built in a safety belt for the sudden twists and turns of life and markets which come hurtling at you unexpectedly from any direction.

Enjoy the freedom to choose your path forward by using the easy-to-use calculator 12 20 80 (baaraa, bees, aur assi). Remember, its not just the answer to "How many mutual funds should I invest in?" that you need to focus on - but the correct mix of mutual funds based on your needs and your objectives.

Table 1: Passively managed and factor-based equity funds cost 60% less than Actively managed equity funds: you can decide which path you wish to follow

Asset class allocation illustrations as per QMF 12 20 80 % Weight in an Actively Managed Portfolio Expense
% Weight in a Passively Managed Portfolio Expense
Liquid Fund, safe money 12 months 0.16% 12 months 0.16%
After safe money, the balance in:
Gold, after Liquid Fund 20% 0.06% 20% 0.06%
Equity, after Liquid Fund 80% 0.72% 80% 0.27%
Of which Equity Fund of Fund 75% 0.51% 0% -
Of which Value Fund 15% 1.29% 0% -
Of which India ESG Fund 15% 0.94% 15% 0.94%
Of which Nifty Fund of Funds 0% - 65% 0.20%

The table below approximates my holdings and planned investments as of September 2022.

Table 2: Baaraa, bees, assi (12 20 80) - and my asli allocation in Quantum Mutual Funds as of September 2022

Asset class, QMF Base Suggestion Ajit Comment
Liquid Fund, safe money 12 months 12 months Plan to increase to about 18 months
Gold, after Liquid Fund 20% 24%
Equity, after Liquid Fund 80% 70% My 6% in Multi Asset Fund has some equity
Of which, Equity Fund of Fund 75% 27% Those who are 'style indifferent' can own more Equity Fund of Fund
Of which, Value Fund 15% 35% I have a 'Value bias'
Of which, India ESG Fund 15% 32% I have a 'ESG' bias
Of which, Q Nifty ETF FoF 7% Tracks NSE 50 Index
Other: Multi Asset Fund 0% 6% Alternative to an FD
Source: Ajit Dayal, September 2022

Ajit Dayal is the Founder of the Quantum Group which includes Quantum Mutual Fund and PersonalFn. Ajit has over 35 years of research and investment experience. An avid writer and speaker, Ajit has been profiled and interviewed by many international and local newspapers, magazines, TV channels and radio shows and is never shy of speaking The Honest Truth. Sign up here to get The Honest Truth delivered every week into your mailbox. It will change the way you think about your investments.

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