How many mutual funds should I invest in

The beauty of Mutual Funds is diversification, tax saving and wealth creation. Each equity funds is diversified among minimum 50 stocks in the equity market. But invest in multiple funds on same category investing in same stock from 2 different funds.

Investing multiple funds in same category, invests in the same set of shares with increased complexity and no diversification

While selecting mutual funds for investment, don’t making them twins! Select different category of funds for better diversification. Before selecting the mutual funds to invest, let us note few points in the investment.
How to select the fund to invest:

Invest maximum 6 mutual funds.
Select historically proven, low expense ratio mutual fund in each category
Review the selected mutual fund stock list. It is available in the each fund house website. There should not be more than 70% overlap between 2 funds. In case overlap is more than 70%, invest in only one instead of 2. For example, Principal Emerging Blue-chip Growth Direct Plan, Mirae Asset Emerging Bluechip Growth Direct funds will have 70% overlap portfolios. Better to select one in these 2.
Review the fund growth chart with Nifty index/ Sensex index chart. The return from fund is less than 3% of Nifty index fund for continuous 2 quarters, better to come out of that fund and invest other funds in same category.
Review the fund growth chart with other fund in same category. It should be in same range of other funds in the category. If the return is less than 10% from category average for more than 1 year, come out of the fund and invest in other better fund in same category. MF portal like Kuvera, Zerodha coin, Paytm Money and Ind money. help to get category average, nifty return, fund chart all in single click. Utilize the data and select the funds.
While selecting the Sectoral funds/Focused funds, invest in the sector where you not directly invested as stocks. In case you do not have any direct pharma stocks in your equity portfolio, select pharma sector mutual funds. In case you do not have bank equity, select financial sector mutual fund for better diversification. How to many funds to invest in: Mutual funds are long term investment products and power of compounding your investment.

Once start the mutual funds investment in monthly SIP, there is no major changes required on monthly or weekly or daily basis. But monitoring performance every 6 months and we have to take corrective actions such as switch to different funds or increase the monthly SIP contribution. In case you select random funds or invest in more number of funds, it would become tedious and time consuming task. We do not have to review ELSS/Tax saving fund in each 6 months as it has 3 years lock-in.

Review your mutual funds every 6 months and take corrective actions if required.

One fund from Nifty Index fund: Long term investment funds for retirement planning, kids higher education, kids marriage or financial goals more than 10 years.

One fund from ELSS/BlueChip : Tax Saving or bluechip funds for better diversification and financial goals more than 7 years. In case you are looking for tax saving, select ELSS funds. Otherwise select one of the bluechip mutual funds.

One fund from multi cap/Nifty Junior Index : For mid cap, small cap investment in Nifty Junior Index for retirement planning, kids higher education, kids marriage or financial goals more than 10 years.

One fund from International funds : Diversification in global market and get returns in dollars.

One fund from Pharma/financial/focused funds : Aggressive growth for sectoral/focused funds

One fund from Gold mutual funds : Gold is always better investment. Invest in gold mutual funds for diversification by investing in gold market.

You have to follow this order to start your mutual fund investments. In case you are interested only in tax saving, select ELSS as first in the order. I am not discussed on debt or liquid funds as we are discussing on long term investment for wealth creation.