How diversified should my portfolio be?

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I currently have 25 mutual fund schemes in my portfolio. There are several theme-based funds, sector-based funds and diversified equity funds across large-cap, mid-cap, small-cap and flexi-cap categories. Additionally, I have invested ₹10 lakh in a large-cap fund. Does having a larger number of funds help with diversification or should they be rationalized? —Name withheld on request We think having more than 15 funds would make it very difficult to manage the investment portfolio.

Also, the diversification benefit gets diluted beyond a point. For large-cap exposure, you may want to opt for an index fund as only a few active fund managers have outperformed the index in recent years and this trend may continue in the future. For mid- and small-cap exposure, you may have multiple funds as the fund management styles would vary across fund managers and fund houses.

For additional diversification, you can add asset classes like fixed income and gold. You can invest in debt mutual funds or corporate bonds for your fixed Income exposure. You can invest in the government’s sovereign gold bond scheme or gold ETFs (exchange traded funds) for your gold exposure.

How much loan can I take against my mutual fund units? What will be the interest rate and what is the process to avail the loan? —Name withheld on request In case of equity funds, you get a loan of up to 50% of the value. With debt funds though, you may get a loan of up to 80% of its value. The interest rate should be 2-4% above the fixed deposits rates and would vary based on the lender.