When somebody sends us a statement to look at, the number of schemes is usually seven or eight. And when I ask what each one is for, the honest answer is almost always the same: they can't remember. Nobody decides to own eight funds. It happens one reasonable decision at a time, over about a decade, and the result is a portfolio nobody designed.
How the collection happens
Trace it back and the story is always recognisable.
One from a bank relationship, opened because somebody at the branch suggested it while you were there for something else. One a colleague was enthusiastic about in 2019. One bought in the last week of March because a deduction was needed urgently. Two from an app during a period when investing felt interesting. One a relative sells.
Every single one of those was a defensible decision on the day. None of them was made in relation to the others, which is the actual problem. You don't have a portfolio; you have a collection of moments.
What overlap does, and doesn't do
Here's the part people get wrong in both directions.
Holding six equity schemes doesn't make you six times as diversified. Several of them likely hold many of the same underlying companies, so what you own is one broad exposure wearing six names, with six sets of paperwork attached to it. The diversification you think you bought largely isn't there.
But the opposite claim is overstated too. Overlap isn't dangerous in itself. It doesn't magnify losses or create hidden risk. It's mostly a waste: you're carrying complexity, statements and decisions that aren't buying you anything.
The real cost is attention. Eight schemes means nobody reviews any of them properly, and the one that genuinely needs a look gets the same non-attention as the seven that are fine.
So what's the right number?
I'd rather answer this with a test than a figure, because the figure depends on what you're funding.
For each scheme you hold, answer: what is this one for, and when is that money needed? If you can answer for all of them, the number is fine, whatever it is. If you can't answer for three of them, you've found the problem, and it isn't the count.
In practice, most households funding two or three goals are well served by two or three schemes. A retirement horizon, a goal eight years out, and near-term money that probably shouldn't be in equity at all. Adding a fourth should have to justify itself: what does it do that the first three don't?
Our page on running more than one SIP covers the case for separating by goal, which is a genuine reason to hold more than one. Collecting is not the same thing.
The one case for holding more
There is a legitimate reason to hold several schemes, and it isn't diversification within the same exposure. It's that you're funding things with genuinely different horizons.
Money needed in three years and money needed in twenty shouldn't sit in the same place, because when the near one arrives you'd be forced to move the whole holding to safety, including the part that still had seventeen years to run. That's a real reason for separation, and it's a decision rather than an accident.
The test still holds though. Separating by horizon gives you two or three schemes with clear jobs. It doesn't give you eight, and if you have eight, the other five arrived some other way.
Where the extra schemes usually came from
Two sources dominate, and both are worth naming because recognising them stops it happening again.
The March purchase. A tax-saving scheme bought in the last week of the financial year, in a hurry, with no thought about what else you hold. Do that four years running and you own four of them, each with its own lock-in ending on its own date.
The recommendation you didn't ask for. Somebody suggested a scheme, you had surplus, and it seemed easier to add than to think. Nothing wrong with the scheme; it just never had a job.
Neither pattern is a failure of judgement. Both are what happens when purchases are made one at a time with nothing written down about the whole. Which is why the one-line-per-scheme exercise below is worth more than any consolidation decision.
Before you consolidate, a warning
The instinct after reading this is to redeem five schemes and buy one. Don't do that quickly.
Every redemption is a taxable event on the gain, and may attract exit load depending on when each purchase was made. For a SIP that's instalment by instalment, so a long-running holding can contain units in very different positions. Cleaning up a portfolio can genuinely cost more than the untidiness does.
The cheaper approach is to stop adding rather than to sell. Pick the schemes you're keeping, direct all new instalments there, and leave the others to sit. They aren't harming anything. Over a few years the portfolio consolidates itself without a single tax event.
Where a holding is genuinely small enough to be pointless, or genuinely unsuitable, exiting makes sense. Work out the cost first, per holding, as our guide on stopping a SIP and withdrawing money sets out.
What to do this week instead
Consolidating schemes is the interesting job. These are the useful ones, and they're the reason to pull your statement out in the first place.
- List what actually exists. A consolidated account statement shows every folio against your PAN, and most people find at least one they'd forgotten. Our guide on finding old mutual fund investments explains how.
- Write one line per scheme saying what it's for and when the money is needed. The ones you can't write a line for are the ones to think about.
- Check nomination on every folio, including the forgotten ones. Higher consequence than any consolidation decision.
- Check the bank account and contact details are current on each.
That's an hour, and it does more for your household than switching schemes ever will.
What a review actually looks like
Once a year, not once a quarter, and it's shorter than people expect.
Read the one-line description you wrote for each scheme and ask whether it's still true. Has the goal moved closer, which means the money should be shifting towards safety? Has your income changed, which means the instalment should be higher? Is there a scheme with no line at all?
What a review is not is a performance comparison against whatever did well last year. That question has no action attached to it that isn't chasing, and chasing costs exit load and tax while buying you whatever is currently expensive.
One number worth being suspicious of
If somebody recommends adding a scheme and the reason is that it's performing well recently, that reason on its own is not enough. Recent performance tells you about a period, not about whether the scheme does something your existing three don't.
The question to ask is boring and it works: what does this add that I don't already own? If the answer is a genuinely different exposure that matches a goal you have, fair enough. If the answer is a chart, you're being sold something.
If you'd like somebody to go through your statement and say plainly which holdings are doing a job and which are just sitting there, that's routine work here, including for folios never invested through us. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working since 2014, and there's no charge for the review. Get in touch.
