1 day ago
Three Fund Portfolios May Not Guarantee Real Diversification
Having three mutual funds does not automatically make an investment portfolio diversified.
A flexi-cap fund can already own companies of different sizes.
Adding mid-cap and small-cap funds may therefore result in owning some of the same companies.
Investors should check what each fund actually owns instead of relying only on fund labels.
They should also compare sectors, investment styles and how concentrated each fund is.
Mid-cap and small-cap funds can be more volatile and may experience larger declines.
New investors may find it simpler to start with one well-selected flexi-cap or broad-market index fund.
More funds should be added only when they provide a clearly different type of exposure.
A flexi-cap fund can already invest across large-, mid- and small-cap stocks.
Different fund categories or fund houses may still hold similar stocks, sectors or investment themes.
Investors should examine holdings, sector exposure, market-cap allocation, concentration and investment style.
Higher-risk investors with horizons of 10 years or more may consider 50–60% flexi-cap, 20–30% mid-cap and 15–20% small-cap allocations.
First-time equity investors may begin with one diversified flexi-cap or broad-market index fund before adding other categories.
- Who
- Mutual fund investors and experts Unmesh Kulkarni and Uttam Agarwal.
- What
- Experts explained that owning flexi-cap, mid-cap and small-cap funds does not automatically ensure diversification.
- Where
- In the mutual fund market; no specific location is stated.
- When
- The article cites August 2026 fund-flow data and discusses long-term investing horizons of 10 years or more.
- Why
- Funds in different categories or from different asset managers can still have overlapping holdings and similar risks.
Key facts
- Flexi-cap role
- A flexi-cap fund can invest across large-, mid- and small-cap stocks.
- Suggested higher-risk allocation
- Kulkarni suggested approximately 50–60% flexi-cap, 20–30% mid-cap and 15–20% small-cap for some long-term investors.
- Investment horizon
- The suggested framework applies to investors with higher risk appetite and a horizon of 10 years or longer.
- Mid-cap inflows
- Mid-cap funds received ₹6,989 crore in inflows in August 2026, according to data cited by Kulkarni.
- Small-cap inflows
- Small-cap funds received ₹7,973 crore in inflows in August 2026, according to data cited by Kulkarni.
- Key diversification test
- Funds should provide different sources of risk and behave differently across market cycles.
- First-time investors
- Experts said beginners may start with one diversified flexi-cap fund or a broad-market index fund.
Quotes
Unmesh Kulkarni
Managing Director and Group Product Head
“As the investor gains experience, understands their risk tolerance and has a longer investment horizon, mid- and small-cap exposure can be added where appropriate.”
livemint.com
“Two or three funds can still have significant overlap in stocks, sectors or investment themes, which may create an illusion of diversification.”
livemint.com
Sources
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