For many first-time investors, starting small with a monthly SIP of Rs 5,000 is a smart and disciplined approach. Mutual fund SIPs help build long-term wealth through systematic contributions, rupee-cost averaging, and market-linked growth. However, a common misconception among new investors is that breaking this amount into several SIPs across multiple mutual funds will offer better diversification and improve returns. Financial experts disagree. In fact, spreading a small SIP across too many funds often weakens the overall portfolio, dilutes growth potential, and creates unnecessary complexity.
If you are planning to start a Rs 5,000 SIP and considering investing in three or four funds at once, understanding why this strategy may not work in your favour is essential. Here’s a detailed look at the impact of multiple SIPs with a limited monthly budget.
1. Over-Diversification Can Hurt Your Returns
Diversification is important, but overdoing it can lead to suboptimal performance. When an investor distributes a small amount like Rs 5,000 into too many funds—say, Rs 1,000 per fund—the exposure to each scheme becomes too small to create meaningful wealth over time.
Moreover, many funds invest in similar sectors and stocks, meaning multiple SIPs may not provide real diversification. Instead, they often lead to overlapping portfolios. This does not increase safety; it reduces the potential for high returns by spreading the investment too thin.
For example, investing in four different equity funds does not guarantee broader diversification if all of them invest in a similar set of large-cap or mid-cap stocks. In such cases, you only multiply fund management fees and complicate tracking without adding value.
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2. Concentrated Investing Boosts Growth in the Early Stages
When your investment amount is limited, focusing on one or two well-chosen funds helps build a strong foundation. A concentrated SIP allows your money to grow faster in a quality fund with consistent performance.
Equity mutual funds generally deliver better results when investors allow compounding to work uninterrupted over many years. Splitting the SIP creates smaller pockets of investment that may take much longer to grow meaningfully.
Experts suggest that for SIP amounts below Rs 10,000 per month, it is best to limit investments to one or two funds so that returns are not diluted.
3. Easier Tracking and Portfolio Management
Managing multiple SIPs can become unnecessarily complicated for beginners. Each fund may have a different objective, risk profile, fund manager strategy, and market movement pattern. Monitoring all of these with limited exposure per fund increases the chances of mistakes.
Having one or two core funds helps you track performance easily, stay disciplined, and make timely adjustments. A simple portfolio is easier to understand, aligns better with long-term goals, and reduces stress during market volatility.
4. Real Diversification Can Be Achieved With Fewer Funds
You don’t need many funds to build a diversified portfolio. A combination of one equity fund and one hybrid or flexi-cap fund can provide exposure across market caps, sectors, and asset classes.
For example:
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A flexi-cap fund spreads investments across large, mid, and small-cap stocks.
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A hybrid fund balances equity and debt to reduce risk.
These two categories alone can give a beginner a well-rounded portfolio without the need to manage multiple SIPs.
5. Fund Duplication Offers No Additional Benefit
Investing in several funds that follow similar strategies leads to duplication of holdings. This means you unintentionally end up investing several times in the same stocks, which does not improve performance or reduce risk.
For instance, major banks, IT stocks, and FMCG leaders appear in most large-cap funds. So even if you invest in four large-cap funds, your true diversification remains limited. Instead, one good fund from a reliable category achieves the same exposure in a simpler and more efficient way.
6. Small SIP Amounts Need Time, Not Excessive Segmentation
When investing small amounts, patience and consistency matter more than diversification across numerous funds. A single high-quality fund compounded over many years can outperform several fragmented SIPs.
Moreover, once your income grows, you can add more funds slowly and build a more extensive portfolio. But in the beginning, aim for simplicity and growth rather than quantity.
7. Expert Recommendation: Start Simple, Grow Gradually
Financial planners suggest the following approach for a Rs 5,000 monthly SIP:
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Choose one good flexi-cap or large-cap fund as the core investment.
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If needed, add one hybrid or mid-cap fund for additional growth and balance.
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Review performance once a year instead of switching frequently.
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Increase SIP as income rises to strengthen long-term wealth creation.
This strategy ensures long-term stability, better compounding, and easier portfolio management.
Conclusion
Starting a mutual fund SIP with Rs 5,000 is an excellent way to build long-term wealth. But splitting this small amount across multiple SIPs is not beneficial. Over-diversification, complexity in tracking, and diluted returns can slow your progress. Instead, selecting one or two well-performing funds and staying disciplined offers better growth and simplified management.
A simple, focused, and long-term approach is the most effective way to benefit from mutual fund investing. With the right strategy, even a modest SIP can grow substantially over time and help you achieve key financial goals.
