Diversification is the other panacea commonly suggested in leading personal finance publications. Too many “experts” take the concept of diversification too much to heart (in my opinion, it’s all a result of high-fee business education). For example, in a recent issue of Mutual Fund Insight, the “experts” often asked “Why the reader had chosen to invest in two mutual funds from the same fund house?” And their recommendation was, “Diversify. Diversify. Diversify. You are not supposed to own more than one mutual fund from the same fund house. That’s taboo.”
Well, why not? Consider these specific mutual funds.
- HDFC Top 200 Fund (Growth).
- HDFC Equity Fund (Growth).
- HDFC Prudence Fund (Growth).
- HDFC Monthly Income Plan Long-Term Plan (Growth).
Perhaps these are the best mutual funds ever seen in the Indian Capital Markets. Not having a combination of these exceptionally managed mutual funds in your portfolio just because of the reason to diversify just doesn’t make sense. You could argue vehemently that all of these funds are managed by a single fund manager and hence there arises the need to diversify. My argument is that if this fund manager has stuck around managing these funds for so long there’s no reason not to believe that he will continue to do so. Worrying about the fund manager’s employment prospects shouldn’t find a place in your list of worries.
And where does “diversification” end? Fund House, Fund Manager, Large-cap, Mid-cap, Small-cap, Multi-cap, Index, Sectoral, Thematic, Distributor, Fund Launch Date, — you can’t diversify for every silly reason in this world.
All said and done, it’s really OK to have more than one mutual fund from the same fund house. Just pick the right fund house — that’s a better advise, but I’m not an “expert.” You wouldn’t want to have all your eggs with the wrong goose right? But all your eggs with the right goose can hatch wonders.
That’s my “expert” take.
What do you think?
Agree. I have all the equity funds listed above, but they are not the only funds I have. Not all MFs for a particular goal should be in one fund house. But cant see anything wrong with more than 1 MF with a fund house.
Yeah. Especially when the same “experts” say that your money is safe when invested in a mutual fund.
But there are some fund houses where I wouldn’t even park a rupee.
I too have investments in all the above funds. They have been consistent performers.
Glad to hear that you agree. What was painful to read was that one of the readers had invested in both Top 200 and Equity, but the “expert” wanted this reader to exit one of them in order to “diversify.”
Bravo. Good point.
Once i had 3 SIP from reliance (vision+growth+power) when its history WAS great… Now i have 2 SIP from HDFC ( T200 + equity) whose history as of now IS great…
Hope your point will hold true for the coming years for these… :)
*MF history may not be a guarentee…. but only an indicator. Sachins career is enough guarentee for us to believe that he will get to his 100th ton sooner than Bajji to get his 3rd… :)
Thanks & keep going.
Good to hear that you agree with this idea as well. I’m sure that these funds will continue to do well.
I believe that one should not learn stock market easily and can not invest directly into that and hence MF is the best way to invest and build wealth over a period of time.
But when you see in deep you will reliaze that MF industry is almost a SCAM and you are earning and some buddy is losing same as Direct Stock investment. No body will be in full profit at any time.
Now diversification, If its true then why Investment Guru (Mr. Warren Buffet ) is saying that dont diversify your investment as that can decrease your returns. Invest in less possible instrument on which you can do full fledged analysis.
What i mean is “Why to diversify?”
– Mutual Fund is already diversifying into multiple sectors and multiple scrips with manager knowledge and analysis. Now over and above you do all you diversification, and that’s called over diversification. Its better to stick to 2 funds (1. Large + Mid 2. Mid + Small) and put % of your cash in FD and DEBT funds that’s it.
One more question…
Though HDFC funds are doing good like Top 200 and Equity and managed by same Fund Manager, But why do they need 2 separate funds in that case. Instead of having 2 funds, They could have managed one fund in a best way such that they could have collected a lot of investor money. They are just having too many funds in Diversified funds as well. Logically they should only be having single Diverisified fund across the segment and market cap.
If you see 3-5 years views on MF, Banking and Pharma sectoral funds have performed the best and they are leading by almost 10-15% more. Where is diversification gone in this?