Three Funds Don't Guarantee Diversification: Experts — SkimNews
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- Unmesh Kulkarni, Managing Director and Group Product Head, said combining three fund categories does not guarantee diversification, urging investors to examine stock overlap, sector concentration, market-cap exposure and investment style rather than fund labels.
- Uttam Agarwal, Chief Business Officer at Bajaj Capital, warned that two or three funds can still have significant overlap in stocks, sectors or investment themes, creating what he called an illusion of diversification.
- Both experts cautioned that holding three funds from three different AMCs does not necessarily reduce risk if the schemes hold similar companies, and noted that two funds from the same AMC could provide meaningful diversification if their mandates, portfolios and investment styles genuinely differ.
- For a long-term investor with a 10-year-or-longer horizon and higher risk appetite, Kulkarni suggested a starting framework of around 50–60% in flexi-cap funds, 20–30% in mid-cap funds and 15–20% in small-cap funds, with more conservative investors keeping a larger share in flexi-caps.
- Mid-cap mutual funds received ₹6,989 crore of inflows in August 2026 while small-cap funds received ₹7,973 crore, per data cited by Kulkarni, underscoring continued investor appetite even as experts flagged deeper drawdowns and liquidity risks in these segments.
- For first-time equity investors, both experts recommended starting with a single well-selected flexi-cap fund or a broad-market index fund, layering in mid- and small-cap exposure only after the investor gains experience, understands their risk tolerance and commits to a longer horizon.
Why it matters: Investors piling into mid-cap and small-cap schemes may be concentrating rather than diversifying risk, with ₹14,962 crore flowing into those two categories in August 2026 alone, while the article's practical test — whether funds offer different risk sources across market cycles — puts the burden of due diligence on checking top holdings and sector allocations rather than counting schemes.
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