Shopping for Mutual Funds

The huge choice that we get from e-commerce sites has a parallel in funds too, but that's no reason to get carried away.

The internet has made it easy to shop for mutual funds. The internet has made a lot of information easily accessible, much of it being extremely hard to find or ingest offline.

Take the shopping experience, for example. Let's say you are looking for something mundane, say a mixer-grinder for your kitchen. Depending on how search, you can find about 750 distinct models listed on Flipkart and about the same number on Amazon. However, if you walk into a physical shop, or even several shops in a market, you'll be hard pressed to come across more than 10 or 20 models, maybe 30.

Much the same experience awaits you when you go looking for a mutual fund to invest in. If you talk to a fund advisor/salesman to find an equity fund, you'll be hard-pressed to get information on more than 5 or 10 of them. However, if you start looking online, you'll find hundreds. For example, you'll find full details on all Indian equity funds--which (counting all variations) is a number much larger than all the mixer-grinders on Flipkart and Amazon.

This is a problem, to put it mildly. While the tiny number that an advisor offers you is likely chosen for the high commission they bring, wading through hundreds of funds online is just as unlikely to lead you to a great choice. What is needed is an awareness that there is an optimum number of funds which is quite low--just three or four are quite enough. Even by investing in one equity fund, your portfolio will probably be diversified across 20 or 30 stocks. If you add four-five funds of a similar kind, you may get the impression that you are gaining diversification, but actually you are just creating an accounting overhead.