Have Multiple SIPs? 5 Portfolio Checks to Make Before Investing in Another Fund

Many investors continue adding new Mutual Funds after starting 3-5 SIPs, assuming that more funds will automatically improve diversification and returns. However, having multiple SIPs does not always mean better portfolio performance. The focus should be on whether each fund serves a specific purpose and contributes meaningfully to the overall portfolio.

Before adding another mutual fund, investors should review their existing investments based on five important factors: goal alignment, portfolio overlap, risk balance, contribution size and regular portfolio reviews.

Every SIP Should Have a Clear Purpose

Each mutual fund in a portfolio should have a defined role. A balanced portfolio generally includes funds that serve different objectives, such as stability, growth and diversification.

For example, investors may consider:

• Large-Cap or flexi-cap funds for relatively stable equity exposure
• Mid-Cap or Small-Cap funds for long-term growth potential
• Hybrid, debt, international or gold funds for diversification

Adding multiple funds with similar investment strategies may not provide additional benefits and can lead to unnecessary duplication.

Different Fund Houses Do Not Always Mean Diversification

Investing in mutual funds from different asset management companies (AMCs) does not automatically create a diversified portfolio. Funds from different AMCs can still hold similar stocks and sectors.

For instance, a large-cap fund and a flexi-cap fund from separate AMCs may have significant exposure to the same companies, resulting in similar market exposure.

Investors should check portfolio overlap before adding another fund. If two funds have a 50-60 per cent similarity in holdings, holding both may not provide meaningful diversification.

Align SIP Risk With Financial Goals

Market rallies often encourage investors to increase allocations towards mid-cap and small-cap funds. However, higher equity exposure can also increase portfolio volatility.

Investors should ensure their SIP allocation matches their financial goals and investment timeline. For short- to medium-term goals, excessive exposure to high-risk funds can impact the chances of achieving the target during market corrections.

A simple way to assess risk is to consider whether the financial goal will remain achievable if markets decline 25-30 per cent. If not, the portfolio allocation may need adjustment.

Avoid Too Many Small SIPs

Investors often add multiple SIPs with small amounts believing it will improve diversification. However, spreading investments across too many funds can make portfolio management complicated without adding significant benefits.

For example, a monthly SIP of Rs 25,000 divided among five funds can work effectively if each fund has a different objective. However, splitting the same amount across 10 funds with Rs 2,500 each may increase overlap and make tracking performance difficult.

Review Portfolio Regularly

Investors should evaluate their mutual fund portfolio as a whole rather than focusing only on individual fund returns. The key objective should be achieving financial goals while maintaining an acceptable level of risk.

Regular portfolio reviews every six to twelve months can help investors check whether their investments remain aligned with their goals, risk appetite and market conditions.

Before adding another SIP, investors should first analyse their existing portfolio and determine whether the new fund adds real value or simply increases the number of schemes held.

Disclaimer: The article is for informational purposes only and not investment advice.