Have you started multiple SIPs for small amounts? Correct this mistake now!

Published: June 12, 2020 at 10:09 am

Last Updated on June 12, 2020 at 10:09 am

Are you a young earner, who has just started investing in mutual funds? Have you started multiple SIPs (3,4,5 …) in mutual funds from the same category or type? Here is why this is a mistake and you need to stops some SIPs and consolidate your investments before it becomes a mess.

Rs. 500 or Rs. 1000 SIP each in three or four large cap funds and the same number in mid cap funds. Rs. 1000 SIP in five multicap funds. Rs. 1000 SIP in two Nifty funds and two Sensex funds. Sounds like a grocery list, but these are some real portfolios that caught my eye in the last few days.

One member in FB group Asan Ideas for Wealth had as many as 16 (micro) SIPs in an array of equity and debt funds and the total amount invested was fairly minuscule. This practice of advisors (human or robot, regular plan or direct plan) recommending multiple SIPs in funds from the same category must stop (or at the very least ignored).

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Those who cannot shoot straight are recommended shotguns that spray tiny pellets instead of a solid bullet. When you choose a single mutual fund over a stock portfolio, you have already got yourself a shotgun. Buying funds of the same category is choosing to fire from multiple pellet shotguns at the same target.

There are only 100 large cap stocks to choose from and if you buy say three large cap funds, the overlap in their portfolios would be significant. You would just be buying more of the same stock with zero additional benefits. See: Compare five fund portfolios for common stocks with new overlap tool! This is also true of mid and small cap funds too – our stock market is smaller than you think (we have small cap funds holding HDFC bank for liquidity and stability)

This is not diversification. This is diworsification.

Diversification is when you add one unit of a different entity to lower overall portfolio volatility (in value and returns). Diworsification is investing small amounts in identical entities, “just in case”.

There is no “averaging benefit” in diworsifying. You may ask, “how do you know there is no such benefit?” My response, “how do you know there is?”Everyone knows the benefits of not keeping all our eggs in the same basket but when I asked investors a simple enough question, “how do you know your portfolio is diversified?”, not one was able to provide a relevant answer (well, Siva from AIFW did, but he is a pro).

So even for a one Nifty index fund and one Nifty Next 50 index fund equity portfolio – which is perfectly fine as the portfolio has a zero overlap by definition – I doubt if most investors could quantify the benefit of the additional fund in the portfolio.

The simple reason being, most investors do not invest in MFs, they invest in SIPs. They want a replacement for an insurance policy or RD- something they can invest each month in, wake up after a few years and get the “maturity value”. To most investors, diversification only means adding different entities (within the same asset class). They know nothing about rebalancing among them periodically and quantifying the benefits of said addition.

If this is the case with a necessary addition, it can be said with fair confidence that an unnecessary addition (buying more of the same) would meet the same or worse fate. Instead of trying to average out the performance of active fund managers investing in the same stock universe, does it not make much better sense to buy one/two index funds and invest in peace? Two here refers to Nifty + Nifty Next 50.

It certainly is a simpler option but that should not stop investors from making the same mistake again: Why is everyone talking about Nifty and not Sensex? Am I missing something if I do not have Sensex funds? How about Rs. 1000 in one Sensex fund and Rs. 1000 in Nifty just in case.

Hang on. What if that one Sensex or Nifty drops in star ratings? Is it not better to have two Nifty index funds and two Sensex index funds (Rs. 500 SIP in each naturally). In this case, too it is would fairly impossible to determine the benefit of the extra fund even if one knew how to.

All that is going to happen is higher portfolio clutter, one more row to look at daily in your “on the go” mobile app, one more thing to worry about. Yes, it is so easy to monitor multiple funds “these days” but that does not mean we should do it, especially when we are clueless about what to monitor, when and how.

The lack of a plan and the lack of confidence in investing in mutual funds cannot become be more clear when one sees such a portfolio. This is a wonderful time to stop additional those Rs. 1000/Rs. 500 SIPs in similar funds, and reduce, make that eliminate similar funds from the portfolio and consolidate.

Why? Take a look at how all the funds in a category reacted to the crash. They all fell pretty much to the same extent. This averaging strategy will not help during the only time it should! Wait a minute, did I just hear you think, “but my Axis Small Cap, Mid Cap and Blue Chip did not fall so much, na?” Oh, how I wish I could leap from your screen to deliver a good thumping.

If someone says, “this is my first year in mutual funds, I got 25% gains and I want to book some profits” there is at least some half-baked emotion-driven logic there. There is not even that in diworsification.

Investors alone are not to blame for this. Human and robo advisors (all kinds, all plans) and journalists are to blame for shaping such thinking. At least in the case of regular plans, I can understand if the advisor wants to maintain a “cordial relationship” with all the AMCs he/she is empanelled with. There is no excuse if a direct plan robo portal does this.

  • If you have Rs. 1000 to invest a month, you need only one fund (one Nifty or Sensex index fund)
  • If you have Rs. 5000 to invest a month, you need only one fund (one Nifty or Sensex index fund)
  • If you have Rs. 10000 to invest a month, you need only one fund (one Nifty or Sensex index fund)

But what about Nifty Next 50? It can wait for a year. Get used to investing in one fund first. Unless you have a few lakhs invested, there is little logic of benefit in buying more funds from the same category. Please do not diworsify. It does not average performance. It does not provide safety. Your portfolio would thank you later.


Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)