The Mutual Fund Advisor: From one good fund to a solid portfolio – how to beat the ‘Top 10 Funds’ list every single time

Every solid portfolio begins with one core equity fund that can quietly do the heavy lifting for years. (AI image)

You don’t need 15 funds; 4–6 well-chosen ones are enough for most investors.The most common portfolio problem I see these days is not “too little choice”. It’s a fridge stuffed with leftovers.Open a typical investor’s portfolio, and you’ll see it: 14 equity funds, 3 hybrids, 2 ELSS, 1 random international fund bought after a YouTube video, and an NFO whose name nobody remembers. Half the SIPs are for ₹1,000. No one knows why each fund is there.Then they ask: “Is my portfolio diversified?”My honest answer: “Yes, it’s diversified. But mostly in confusion.”In this column, I want to walk you through the opposite way of doing things: starting with one good fund and growing a portfolio slowly, deliberately, like building a house brick by brick. This is also how we build model portfolios inside Value Research Fund Advisor (VRFA). We don’t begin with “how many funds can we add?” We start with “What is the minimum we can get away with?”Step 1: Start with one boringly good core fundEvery solid portfolio begins with one core equity fund that can quietly do the heavy lifting for years.For most people, this is a broad, well-diversified fund: a good flexi-cap, a large-cap, or a simple index fund tracking a broad market. It should be the kind of fund that does not need much “watching”, does not chase fads, and owns a wide basket of companies.Say, an investor starts with a single flexi-cap fund, with a SIP of ₹10,000 per month. Over the next five years, this one fund alone grows to over ₹ 9 lakh.So, the idea is simple: if you get your first fund right, you’re already 60–70 per cent of the way to a good portfolio.Inside VRFA, this is exactly where we start when someone comes in with no investments or with a messy portfolio. We first identify or suggest a strong core fund that matches their goal and risk level. Only after this is in place do we even think of adding anything else.Step 2: When to add a second core fundVery quickly, investors get itchy. As soon as the first fund does okay, the mind whispers: “Ab ek aur le lete hain.” That’s fine—but the second fund should be another pillar, not a clone.There are good reasons to add a second core fund:

What is not a good reason is: “This fund is on a ‘Top 10 Funds’ list this month, so let me add it.”A second core fund should either bring a slightly different style (e.g., one fund is more large-cap oriented and the other has some mid-cap exposure) or a different structure (e.g., pairing a flexi-cap with a large-and-mid-cap fund).If both your funds are flexi-cap funds from similar AMCs and hold the same top 20 stocks, then you don’t have two funds. You have one portfolio with duplicate statements.At VRFA, when we see this kind of overlap, our system literally shows you the combined underlying holdings. Quite often, investors are shocked to see that their “five different funds” actually own the same 25–30 companies in slightly different proportions. That is not diversification. That is administrative clutter.Step 3: Adding a satellite – but only after the core is steadyOnly after the core is in place—typically two good equity funds—should you think of adding a “satellite” fund.A satellite fund is like a side dish. It can make the meal more interesting, but you can’t live on it alone. In practice, this usually means:

You add a satellite to tilt your portfolio, not to turn it upside down.Starting with two core equity funds that together form about 70-80 per cent of the total equity allocation, the investor adds one mid-cap fund with just 20-30 per cent allocation. Over 10-15 years, the core provides stability, while the mid-cap adds an extra kicker to long-term returns.The message is: the satellite must remain smaller than the core. If your mid- and small-cap funds become 60–70 per cent of your equity money, you are not “enhancing returns”; you are simply increasing the chances of losing sleep.Inside VRFA model portfolios, you’ll see this very clearly: for most investors, the core funds make up the bulk of the allocation. Satellites are small, carefully chosen, and sometimes absent altogether—especially for conservative or first-time equity investors.Step 4: The debt or hybrid layer – where real-life risk is managedThere is one more building block most investors ignore because it is not glamorous: debt and hybrid funds.If you are investing for goals 3-5 years away, or if you want to control how wild your ride is, part of your portfolio should be in safer assets.This can be:

Think of this as the shock absorber of your portfolio. It doesn’t look exciting in good times, but it stops your long-term plan from collapsing when the market throws a tantrum.For a goal that is four years away, instead of putting 100 per cent in equity, an investor could use an equity savings fund, which typically keeps about 30 per cent in equity and the rest in debt and arbitrage. In March 2020, when the market fell 23 per cent, such a portfolio would likely have fallen far less, closer to 10 per cent.This is the difference between staying invested and panicking out.At VRFA, every recommendation starts with asset allocation by goal: how much should go into equity, how much into debt, and how that should change as the goal gets closer. Only after this is decided do we select specific funds to fill those buckets.The big enemy: duplication and overlapNow we come back to the biggest disease in Indian portfolios: owning five versions of the same thing.

If you dig into the holdings, you’ll often find the same leading banks, IT companies, consumer stocks repeating everywhere.Instead of “five sources of return”, you’ve created:

Inside VRFA, one of the first things we encourage subscribers to do is a “portfolio cleanup” using our model portfolios as a reference. You can literally open the recommended portfolio for your risk level and compare it with your own:

Very often, the best “new investment” is not a new fund, but getting rid of an old one.So what does a sensible 4–6 fund portfolio look like?Let me put all this together. For a typical long-term investor, a clean, effective portfolio might look like this:

That’s it. Four to six funds. Not because you are lazy, but because you are disciplined.Compare that with the 15-fund portfolio:

At VRFA, every model portfolio is built with this core–satellite thinking. We start by asking: “If this investor never touched their portfolio for the next 10–15 years and only kept investing regularly, would this mix give them a high chance of success?” Then we work backwards.How to use this in your own portfolioIf you’re reading this and your portfolio already looks like a museum of every fund ever launched, here is what I suggest:First, don’t panic. Cleaning a portfolio is not an emergency surgery. It’s more like decluttering a house.Second, line up your funds on a sheet of paper (or on a portfolio tracker):

If you’re a VRFA subscriber, this process becomes much easier. You can match your portfolio to a model portfolio tailored to your risk profile and goals. You’ll often find that you don’t need more funds; you need fewer, better-chosen properly-sized funds.And if you’re not a subscriber yet, you can still borrow the idea: think in terms of roles, not “number of funds”. Every fund in your portfolio should be able to answer a simple question:“If I remove you, what important job will stop getting done?”If the honest answer is “nothing much”, then you’ve just found clutter.A solid portfolio is not built in one weekend. It grows from one good core fund into a small, well-organised team of funds, each doing its job. You don’t need 15 people shouting at once. You need 4–6 calm, reliable team members who show up year after year.That, in the long run, beats the noisiest “Top 10 Funds” list every single time.(Sneha Suri is Lead Fund Analyst – Value Research’s Fund Advisor)(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)