New Delhi, June 3 -- There is a myth that investing in many mutual funds simultaneously, hoping for better returns, is a good strategy. In fact, many investors deliberately turn their portfolios into a crowded, confused collection of schemes that hold nearly the same stocks, use similar investment methods and strategies and deliver nearly identical returns.

The result of such decision-making investing is: more complexity, more doubt, less clarity and little real diversification. The biggest problem in following such investment strategies is that they are seldom backed by professional guidance and are mostly driven by emotions.

Over-diversification occurs when investors continue to add new mutual funds, stocks or asset classes to their p...