Ajay's core portfolio includes 3 schemes: a large-cap, flexi-cap, and multi-asset allocation scheme, with a small exposure to a couple of sectoral/thematic schemes. However, he noticed that some companies appeared across multiple schemes in the portfolio. To build a diversified mutual fund portfolio, many investors face the challenge of portfolio overlap of varying degrees.
You can build a simple mutual fund portfolio of 3 index funds that gives you exposure to India's top 500 companies (by market capitalisation) with no overlap. These include:
Nifty 100 Index Fund, Nifty Midcap 150 Index Fund, and Nifty Smallcap 250 Index Fund.
The Nifty 100 Index Fund invests in all the constituents of the Nifty 100 Index, which includes India's top 100 companies by market capitalisation. The Nifty Midcap 150 Index Fund invests in all the constituents of the Nifty Midcap 150 Index, which comprises India's top 150 midcap companies by market capitalisation. The Nifty Smallcap 250 Index Fund invests in all the constituents of the Nifty Smallcap 250 Index, which comprises India's top 250 smallcap companies by market capitalisation.
Investing in these indices through index funds gives the much-needed diversification, index returns, and lower costs. You may invest regularly through monthly SIPs for a longer tenure of more than 5 years.
The portfolio percentage allocation to each index fund will depend on your risk appetite. All three being equity funds, carry high risk. However, the smallcap index funds have the highest risk, midcap index funds sit in between, and largecap funds have a lower risk. You should consult a financial advisor who will recommend the appropriate funds based on your risk profile and the portfolio's percentage allocation to each of them.
