Most people do not choose a fund list. It piles up.
One fund from a colleague. One a bank staff member put in front of you. Two from a year when you read a lot about investing. A tax saving one from March. Another because the first was doing badly. Ten years on you hold nine funds and could not say what any of them do.
Nine funds is not nine bets
This is the bit that surprises people, and it is not an accident. It is built into the rules. A large company fund has to put at least 80% of its money into India’s biggest 100 companies. Not roughly. It is a rule. So every such fund is picking from the same 100 names. And they mostly like the same ones.
Take any two large company funds in India and on average 38% of what they hold is the same. In bad cases it is 60% to 72%. Two different fund houses, two different names, two sets of charges, largely the same shares. Buy five of them and you have not spread your money five ways. You have bought roughly the same thing five times, and paid five times to have it managed.
Why more funds stops helping so quickly
One fund already holds forty to seventy companies. That is a lot of eggs in a lot of baskets. Adding a second fund in the same category does not add forty more companies. It adds maybe twenty five you did not have, and repeats the rest. By the fourth or fifth, you are adding almost nothing. What you are adding is work: more statements, more decisions, more things to track at tax time.
Most people are well covered by three to five funds. Some do fine with two.
What a short list looks like
The test is not how many you hold. It is whether each one has a job the others do not.
- One for big Indian companies. The core. For most people an index fund does this at the lowest cost.
- One for smaller Indian companies, if you want them and can sit through bigger falls.
- One safe one, for money you may need in the next few years.
That is a whole plan. If you want to hold something outside India, that is a fourth. Anything beyond that needs a reason you can say out loud.
Now the part that stops people
Cleaning up sounds free. It is not. Selling a fund means paying tax on what it gained. Say you decide to drop five funds worth ₹12 lakh, and half of that is gain. So ₹6 lakh of gain. Each year the first ₹1,25,000 of such gains is free of tax. Sell the lot in one go and only that much is covered. The rest is taxed.
- All in one year: about ₹61,750 of tax.
- Split across two years: about ₹45,500.
- Spread over five years, taking ₹1,25,000 of gain each year: nothing at all.
Same tidy up. The only difference is patience. There is no rush. A messy fund list is not costing you much each month. Paying ₹61,750 to tidy it this week would be. Tax harvesting explains that yearly free limit, and the capital gains calculator works out your own number.
Three traps while you do it
- A switch is a sale. Moving money from one fund to another counts as selling one and buying the other, even inside the same fund house. It is taxed exactly the same way. The word “switch” makes it sound like nothing happened. Something happened.
- Tax saving funds are locked. Anything you bought for the tax deduction cannot be sold before its lock in ends. Check those dates before planning anything.
- Stop the new money first. If a monthly payment is still going into a fund you want to leave, stop that today. It costs nothing and it stops the pile growing while you work through it.
How to actually do it
- List everything you hold on one page. Name, what it invests in, how much is in it. Your account statement will give you all of this.
- Group them by what they actually do, not by who sold them to you. You will usually find three or four doing one job.
- Pick one keeper in each group. Where two do the same thing, keep the cheaper one. Cost is the one difference that is certain in advance.
- Stop new money into the rest today. This is the free half of the job and you can do it this evening.
- Then sell slowly, using the free limit each year, until the list is short.
Step four is most of the benefit and costs nothing. Step five can take five years, and that is fine.
A short list is not about being tidy. It is that you can see what you own, you know why you own it, and when something goes wrong you know which part it was. Nine funds hide all of that from you, which is why the mess feels safe.
This article is for learning. It is not personal financial advice, and no fund or company is named or recommended here. The overlap figures come from studies of Indian equity funds and change as funds change what they hold. Tax rules are those for the tax year 2026-27 and change with every Budget, so check the current position before selling anything. Lock in periods and exit charges differ by fund. For advice about your own money, speak to a SEBI-registered investment adviser.