Three Funds, One Portfolio: Why Diversification Isn't Just Categories — SkimNews
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- Unmesh Kulkarni, Managing Director and Group Product Head, said three funds can be enough but category labels are less important than what the schemes actually hold, urging investors to examine stock overlap, sector concentration, market-cap exposure and investment style.
- 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 an illusion of diversification.
- Flexi-cap funds already invest across large-, mid- and small-cap stocks, meaning adding separate mid-cap and small-cap funds can increase segment exposure without equivalent diversification gains, according to experts.
- Kulkarni noted that three funds from three different AMCs does not necessarily reduce risk if holdings are similar, while two funds from the same AMC could provide meaningful diversification if mandates and portfolios genuinely differ.
- Mid-cap funds received ₹6,989 crore and small-cap funds ₹7,973 crore in inflows in August 2026, data cited by Kulkarni showed, indicating continued investor appetite despite volatility risks.
- Kulkarni suggested a starting framework of 50–60% in flexi-cap, 20–30% in mid-cap and 15–20% in small-cap funds for long-term investors with higher risk tolerance, with more conservative investors keeping a larger share in flexi-cap.
- First-time equity investors may benefit more from a single well-selected flexi-cap or broad-market index fund, with mid- and small-cap exposure added later as experience and risk tolerance develop, Agarwal said.
Why it matters: With ₹14,962 crore flowing into mid- and small-cap funds in August 2026, retail investors chasing category names risk concentrated portfolios if they don't check underlying holdings — a single flexi-cap fund could deliver broader actual exposure than three superficially diversified schemes.
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