How to diversify my mutual fund portfolio?

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I have started investing Rs 3,000 in Axis Long Term Equity Fund (G), and Rs 1,000 in Reliance (Nippon India) Small Cap Fund (G). My investment horizon is at least seven years. My risk profile is moderately high, while taking considerable returns. Seeing the sector allocation, should I invest in Mirae Asset Emerging Bluechip Fund which also has around 20% allocation for financial? Or how else should I diversify my portfolio.

I have shortlisted a couple of international funds like Franklin India Feeder Franklin US Opportunities Fund and ICICI Prudential US Bluechip Equity Fund. I see that their performance is good in the short term - that is, in three years they are giving an average return of 14-15%. So, can I opt for these funds for short term as in 3-5 years? If so, a lumpsum or SIP is advisable?
-Gowthami Bhogireddy


One, when you are investing a modest amount it is very difficult to to achieve a meaningful diversification without sacrificing returns. At the moment, you should be focusing on a focussed portfolio that is in line with your risk profile. For that, you should sharply define your risk profile. Many investors use the profile `moderate to high' conveniently. They are moderate when the market is falling and high risk-takers when the market is high. As you can see, this is a wrong approach to investing.

  • -4.42%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 2.2 YearsTime taken to double money
  • 5.35%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 2.11 YearsTime taken to double money
The prevailing market conditions or return possibility, should not influence your risk profile. You have a certain risk taking ability that is determined by your financial situation. Then you have psychological bend towards a certain kind of risk. You should determine your risk profile based on these inputs. If needed, take an online quiz to determine your risk profile.


Once you know your risk profile, you should choose a mutual fund that matches your risk profile. For example, if you have a moderate risk profile, you should invest in a multi cap mutual funds. You can think of adding more schemes to your portfolio when you start investing a large amount after a few year, assuming you increase your investment every year in line with your salary hike.

You should not invest in equity mutual funds, bet in Indian or overseas, with an investment horizon of three years. You should always invest in equity with a horizon of at least five to seven years. Also, it is always a better strategy to stagger your investment over long period in equity mutual funds. The period should be based on the quantum of funds you want to deploy in equity mutual funds.
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