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Is there a limit on the fraction of one's portfolio that is safe to invest in a single mutual fund?

The risks I'm concerned about are the fund manager making bad decisions and the fund not generating good return relative to its peers, over time, there being a scam in the fund house, the fund house's computers getting hacked and them losing track of who has how much in their account, and other scenarios one can imagine.

My investment advisor (whom I no longer work with) told me that given how much money I have today, I should have no more than a quarter of it in a single fund house. And that as I have more money, this percentage should decrease.

Is there a norm or widely-accepted practice regarding this?

These investments are in India, denominated in rupees.

  • It depends on how much money we are talking about. Below 25K, it really doesn't matter. 25-50K, three or four funds, above 100K no more than 25%. More than that I like to see 10% or less in a fund. – Pete B. Nov 18 '15 at 19:27
  • 25K in what currency? These investments are in rupees. – Vaddadi Kartick Nov 19 '15 at 3:25
  • Sorry USD. No currency was given in the original question. – Pete B. Nov 19 '15 at 13:46
  • Sorry that I did not mention that information in the original question. Updated now. – Vaddadi Kartick Nov 19 '15 at 13:50
  • We can't answer this without knowing what you mean by "safe". – AakashM Nov 19 '15 at 14:41
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There is no research or scientific data to arrive at how much in Single Fund is good, how much is more risky.

Its a question of risk appetite, how much money if you loose you are fine.

This is similar to making a decision as to how much diversified should a portfolio be ... i.e. what mix of FD/Mutual Funds/Shares/Gold/Real Estate one should have.

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Note that many funds just track indexes. In that case, you essentially don't have to worry about the fund manager making bad decisions. In general, the statistics are very clear that you want to avoid any actively managed fund.

There are many funds that are good all-in-one investments. If you are in Canada, for example, Canadian Couch Potato recommends the Tangerine Investment Funds. The fees are a little high, but if you don't have a huge investment, one of these funds would be a good choice and appropriate for 100% of your investment.

If you have a larger investment, to the point that Tangerine's MER scares you a little, you still may well look at a three or four fund (or ETF) portfolio.

You may choose to use an actively-managed fund even though you know there's virtually no chance it'll beat a fund that just tracks an index, long-term. In that case, I'd recommend devoting only a small portion of your portfolio to this fund. Many people suggest speculating with no more than 10% of your combined investment. Note that other people are more positive on actively-managed funds.

  • These are actively managed funds, and they beat passively managed funds, in India. The claim that the latter beat the former holds in only some countries, maybe developed countries. I'm not looking at these as speculation; 100% of my equity money is in actively managed funds. So the question is what fraction can be in a single fund. – Vaddadi Kartick Nov 19 '15 at 3:32
  • This may hold true in the short term, but doesn't hold true over sufficiently long time frames. Be careful; India's had a good run recently, but if you care about timeframes in the 20 - 40 year period, as most people investing for retirement do, the stats show you won't beat the index. If 100% of your equity money is in actively-managed funds, you are certainly overcommitted. – ChrisInEdmonton Nov 19 '15 at 13:27
  • I appreciate that you're trying to help, but let's get back on track to the original question asked: what fraction of money is safe to put in a single fund? Remember that I invest only in actively managed funds. – Vaddadi Kartick Nov 19 '15 at 13:49
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Depends on the fund. If it's a Target Date fund, which is inherently diversified, this comes down to how much you trust the investment house to not go belly-up. If it's another kind of fund, you need to manage your own duversification and occasional rebalancing.

Most of my money is in index funds (details elsewhere), but that's five or six very different indexes to cover the investment space with the mix of investment types I've selected. And most of it is in a single family of funds, which might be argued to be higher risk than desirable but which has been convenient.

  • It's not a target date fund, and it has no debt component. It's just a pure equity fund. Besides, it's actively managed, so in addition to the risk of the fund house shutting down, there's the risk of poor choices made by the fund manager. I'm happy managing my own diversification. The question is what fraction of my corpus is safe to invest in a single fund. – Vaddadi Kartick Nov 19 '15 at 3:30

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