Stories
Why Your Mutual Fund Portfolio Might Be Riskier Than You Think
- •Portfolios can become riskier over time even without making any changes due to uneven asset growth.
- •Market rallies can automatically increase your equity exposure beyond your intended asset allocation.
- •Holding multiple mutual funds does not guarantee diversification if they invest in the same underlying stocks.
- •Small-cap and sectoral funds can amplify losses during market downturns despite delivering strong past returns.
- •Investors should periodically review asset mix, stock overlaps, and tax implications before rebalancing.
Key Questions Answered
Holding various funds like large-cap, flexi-cap, and index funds can create a false sense of security because many schemes still hold identical stocks. If those specific companies face a downturn, multiple funds can fall simultaneously, meaning that owning more schemes does not automatically spread your market risk.
If equity funds grow faster than debt investments during a strong market rally, your overall asset allocation shifts without any active buying. For example, an initial 60:40 equity-to-debt ratio can climb to nearly 69 percent in equity, leaving you with a much higher market risk than originally planned.
Investors should check a fund's major holdings, target sectors, and how much it overlaps with existing schemes rather than depending on recent performance alone. SEBI guidelines also recommend aligning your asset mix and diversification strategy with your personal financial goals, risk tolerance, and investment horizon.
