I am 40 and wish to invest Rs.20, 000 every month for the next 15 years through systematic investment plans (SIPs). Should I put this money into 10-12 funds with Rs.1, 000- Rs.1, 500 in each of them? Anjali Bajaj, Mumbai
In the simplest form, diversification means spreading your money across asset classes like equity, debt and cash
I am 40 and wish to invest Rs.20, 000 every month for the next 15 years through systematic investment plans (SIPs). Should I put this money into 10-12 funds with Rs.1, 000- Rs.1, 500 in each of them? Anjali Bajaj, Mumbai
You are making a good move by considering investing in mutual funds for the next 15 years through SIPs to create wealth. You seem to have heard of diversification when investing but have not understood its essence in the right manner. In the simplest form, diversification means spreading your money across asset classes like equity, debt and cash. With diversification, your portfolio’s volatility or risk is reduced because of the varying correlations of each of these investments in the portfolio.
For long-term wealth creation, you need to invest in a basket of three to four funds and no more. By spreading your money into 10-12 fund schemes, you will only have diversification in number and not the diversification that will make your portfolio grow. With a smaller number of funds in your portfolio, you will have the advantage of not just managing it well, but also knowing how it is faring in the long run. You can pick funds from the OLM Elite list according to your risk profile.
Once you have identified your investor type, you can invest in funds from the five different profiles we feature. Each stereotype consists of five fund schemes, but you need not invest in all of them; a mix of two to three funds is good enough to get you the right diversification needed for long-term investing. Ensure you review the performance of the funds you invest in at least once a year to ascertain if it is progressing in the manner you were hoping for and building wealth for you.