How can I build a diversified mutual fund portfolio?

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I am 31 years old. I am currently investing in the following mutual fund schemes through SIPs:
Axis Bluechip Fund: Rs 4,000
ICICI Prudential Bluechip Fund: Rs 2500

Now, I want to invest Rs 15,000 per month through SIPs and diversify my portfolio. My risk profile is moderate and horizon is 7-10 years. If I pick a corporate bond fund (Rs 4,000), a mid cap fund (Rs 1,000), a multi cap fund (Rs 1,000) and a ELSS fund (Rs 3,000), will it be a well diversified portfolio?

-Anirban Banerjee


Diversification is not about buying schemes from several mutual fund categories. The basic idea behind diversification is to spread investments across different asset classes to reduce risk and optimise returns from the portfolio. We believe regular investors can diversify their portfolio by adopting a goal-based investment approach. This automatically would result in debt investments for short-term goals, and equity for long-term goals. One can diversify further by taking a small exposure to a different debt or equity category to reduce risk.

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  • >3 years Suggested Investment Horizon
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  • 13.13%Annualized Return for 3 year
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Some investment experts believe that one can also invest in different asset classes like debt, gold, etc in the portfolio to achieve the long-term goals. However, this should be done on the basis of your goal, investment amount, return expectation, and risk profile. The basic idea behind this form of diversification is to ensure that you are not at the mercy of just one asset class to achieve your goal. However, the problem with such an allocation is that you need to invest more to achieve your goal as the diversification may result in lower overall returns from the portfolio.


If you are investing for a period of 10 years and you have moderate risk profile, you should invest mostly in multi cap mutual funds. If you wan to reduce the overall risk and diversify the portfolio, you may invest a small part in large cap schemes. Do not add schemes for the sake of adding them. You should always make sure that they help you to achieve your goal and also matches your risk profile.

A corporate bond fund is debt mutual fund scheme that is considered ideal for conservative investors looking to invest for three or four years. If you add the scheme to your portfolio, it may drag the overall return from your portfolio. A mid cap scheme is not suited for your risk profile. Mid cap schemes are risky and volatile. They are more suited for aggressive investors with a stomach for volatility. You may invest in ELSS if you want to save taxes under Section 80C of the Income Tax Act. Investments in ELSS qualify for tax deductions of up to Rs 1.5 lakh in a financial year.
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