New Delhi, June 26 -- One of the most common misconceptions among mutual fund investors is that owning more funds automatically means better diversification.

The logic appears sound at first glance. If one mutual fund helps spread risk across multiple stocks, then holding several funds should reduce risk even further. But in reality, there comes a point where adding more schemes stops improving diversification and starts creating duplication.

This is where concepts such as portfolio overlap and overdiversification become important.

Financial experts say that for most retail investors, a portfolio of four to six carefully chosen mutual funds is often sufficient to achieve broad diversification while keeping the portfolio manageable.

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