The first rule of diversification is to have a well-diversified allocation based on your risk profiling. For example, 40% in large caps, 30% in mid-caps, 20% in multi-caps and so on. Having decided your allocation, would you go investing the respective schemes form a single asset management company (AMC) or invest in different fund houses? I have seen people invest their money basis the allocation mentioned above in different schemes of the same mutual fund house, which has its own pros and cons. So how should one take care of this? Let us understand.

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First and foremost, there is no rule as such and always remember to do your financial planning first. Based on that and financial goals you should invest. Though it is not compulsory to invest in different AMCs, it is always the best practice to follow. 

Why you should diversify your investment in different AMCs as follows:-

In-house style and unique processes: Different fund houses will use their own style in managing funds, their investment philosophy, processess which ultimately protect your money from a probable change in case of a failure in the system i.e, the processes.

Best-performing funds: It is unlikely that you would pick a fund house which is topping the list of top-performing schemes in different categories, and diversifying across fund houses helps you get the advantage of investing in the best schemes from different fund houses.

Fund managers: At times, a fund manager manages multiple schemes, it is also very common for them to change their job and the incumbent may or not match the style of his/her predecessor and may have their own way of managing funds. This exposes your investment to potential risk.

Change in management: What if there is a change, like acquisition, merger or demurrer, or regulatory compliances, which may affect the fund house differently. This, too, can have an impact. 

So always focus on having a well-diversified portfolio consisting of schemes suiting to your goals but also take care of spreading your allocation of the best schemes from different fund houses as mentioned above. The reason why people generally are unable to do it is because of the vast pool of information available online. What they fail to realise is that Google searches can give you a lot of information but whether that is right for you or not requires wisdom. Hence, always focus on creating a portfolio which works under all conditions.

The writer is chief gardener, Money Plant Consultancy