How Many Mutual Funds Should You Hold for Maximum Returns?

They say, “Don’t put all your eggs in one basket.” That advice fits perfectly when it comes to mutual fund investing. Diversification is essential for reducing risk, but too much of it can work against you. Many investors assume that the more funds they own, the better their diversification and chances of earning higher returns. However, holding too many funds can lead to what experts call “diworsification” — where your portfolio becomes scattered, repetitive, and difficult to monitor effectively.

There isn’t one fixed number of mutual funds that suits every investor. The ideal count depends on your financial goals, risk appetite, and investment horizon. Still, for most individuals, five to seven well-chosen funds are usually enough to achieve meaningful diversification without unnecessary overlap.

A balanced approach could include:

• 2–3 equity funds: for exposure to large-cap, mid-cap, and flexi-cap categories, providing long-term growth potential.
• 1–2 debt funds: to add stability and consistent income.
• 1 hybrid or balanced fund: blending equity and debt for moderate growth with lower volatility.

When you hold more than eight or nine funds, you’re likely to own multiple schemes investing in the same stocks. This duplication reduces the effectiveness of diversification, making it harder to outperform benchmarks and increasing the difficulty of managing and rebalancing your portfolio.

Rather than collecting funds from every category, focus on quality over quantity. Choose funds with strong track records, stable management, and strategies that align with your investment goals. Reviewing your portfolio once or twice a year helps ensure your investments remain aligned with market conditions and personal objectives. It is also wise to use an online mutual fund calculator to project expected returns that a mutual fund can generate over time.

Ultimately, smart diversification — not excessive diversification — is the secret to maximising mutual fund returns. A compact, well-structured portfolio of quality funds allows you to balance growth, safety, and manageability. Over time, consistency and discipline will do far more for wealth creation than simply adding more funds to your basket.