How many mutual funds should I hold?

For most people three to five equity funds is plenty, and a single broad fund is a perfectly respectable place to start. Diversification comes from the number of companies you own, not the number of schemes you own — one flexi cap or broad index fund already holds dozens of stocks across every sector. A sixth or eighth fund usually adds duplication, not protection.

The real test is overlap, not count. Two funds in the same category often hold the same large companies, so you carry the same risk twice while paying two expense ratios and tracking two NAVs. If you do want more funds, make each one do a different job — a core all-cap holding, a mid or small cap satellite for money you genuinely won't touch for seven years, an ELSS if you want the Section 80C deduction — rather than three funds competing for the same slot.

A practical rule for SIP investors: your fund count should never exceed what you can review once a year. Every extra scheme is another decision, another exit load to remember and another set of tax lots at redemption. If you already hold more funds than you can name from memory, the useful move is almost always consolidating rather than adding.