Is Your Mutual Fund Portfolio a Mess? A Step-by-Step Guide to Decluttering for Better Returns in 2025

Does looking at your mutual fund statement give you a headache? If you see a long list of 15, 20, or even more schemes, you might be an accidental ‘fund collector’. Over time, through various SIPs, NFOs (New Fund Offers), and well-meaning advice, it’s easy to build a portfolio that looks more like a crowded Mumbai local train than a well-planned financial journey.

This isn’t just about being messy; it’s about losing money. A cluttered portfolio often leads to hidden risks, overlapping investments, and subpar returns. As we head towards 2025, it’s the perfect time to do a bit of financial ‘Diwali cleaning’. Let’s break down how to declutter your mutual fund portfolio, step-by-step.

Why Your Cluttered Portfolio is Costing You

Before we dive into the ‘how’, let’s understand the ‘why’. A messy portfolio can hurt your wealth in several ways:

• Diworsification: You think you’re diversifying, but you might be ‘diworsifying’. Owning five different large-cap funds often means you own the same top 10 stocks (like HDFC Bank, Reliance, ICICI Bank) multiple times. You’re not spreading risk; you’re just complicating it.
• Difficult to Track: How can you track the performance of 20 different funds? It’s nearly impossible. You’ll miss spotting the consistent underperformers dragging your returns down.
• Goal Misalignment: The ELSS fund you bought for tax-saving might not be the right fit for your retirement goal in 20 years. Clutter makes it hard to link specific investments to specific financial goals.

Your Step-by-Step Guide to a Cleaner, Meaner Portfolio

Ready to get your hands dirty? Grab your consolidated account statement (CAS) from CAMS or KFintech, a cup of chai, and let’s begin.

Step 1: Lay It All Out and Revisit Your Goals

First, list down every single mutual fund scheme you own. Next to each, write down its current value and the category (e.g., Large Cap, Flexi Cap, Small Cap, Debt, etc.).

Now, the most important part: ask yourself, “Why did I invest in the first place?” Are you saving for:
* A down payment on a house in 3 years?
* Your child’s education in 15 years?
* Your retirement in 25 years?

Your goals determine your strategy. A short-term goal requires safer debt funds, while a long-term goal can accommodate the risk of equity funds.

Step 2: Spot the Underperformers (The Laggards)

This is where you play detective. Compare each fund’s performance not just in the last year, but over 3, 5, and 7-year periods. How does it stack up against:
* Its Benchmark Index: Is your large-cap fund consistently beating the Nifty 50 TRI?
* Its Peer Group: How does it fare against other funds in the same category?

A key point from the analysis on how-to-declutter-your-mutual-fund-portfolio-for-better-returns is that a fund consistently underperforming its benchmark and peers for over two to three years is a strong candidate for review. A one-off bad year is acceptable, but a pattern of poor performance is a red flag.

Step 3: Hunt for Overlap (The Silent Killer)

This is the most common problem in cluttered portfolios. You might own two Flexi Cap funds that have 60-70% of the same stocks. You’re not diversified; you’re just paying two separate fund managers (and two expense ratios) to buy the same shares.

How to check? Use free online tools like Advisorkhoj or Morningstar where you can enter your fund names, and they will show you the percentage of overlap in the underlying stocks.

Step 4: The ‘Sell, Hold, or Consolidate’ Decision

Now for the action. Based on your analysis, categorise each fund.

• SELL:

  • Consistent underperformers.
  • Funds with very high overlap with your core holdings.
  • Schemes that don’t align with any of your financial goals (e.g., a high-risk sectoral fund when you need stability).
  • Too many funds in the same category. You don’t need five large-cap funds. One or two good ones are enough.

• HOLD:

  • Consistent performers that are aligned with your long-term goals.
  • Funds that provide genuine diversification to your portfolio.

• CONSOLIDATE:

  • If you have small investments scattered across 3-4 similar, decent-performing mid-cap funds, consider consolidating them into the single best-performing one. This makes tracking easier. The guide on how-to-declutter-your-mutual-fund-portfolio-for-better-returns stresses that consolidation reduces mental clutter and helps you focus on schemes that truly matter.

A Quick Word on Taxes: Before you sell, remember the tax implications. For equity funds, gains on units sold within a year attract a 15% Short Term Capital Gains (STCG) tax. If sold after a year, gains up to ₹1 lakh are tax-free, and gains above that are taxed at 10% (Long Term Capital Gains or LTCG). Plan your selling to be tax-efficient.

Step 5: Rebuild with a Core-Satellite Approach

Once you’ve cleaned up, don’t just leave a vacuum. Rebuild your portfolio with a clear structure. A popular and effective method is the Core and Satellite approach.

• Core Portfolio (70-80%): This is the foundation. It should consist of stable, well-diversified funds like a Nifty 50 Index Fund, a good Flexi Cap Fund, and perhaps a Balanced Advantage Fund. These are your long-term wealth creators.
• Satellite Portfolio (20-30%): This is where you can take calculated risks for higher returns. This could include a Mid Cap or Small Cap fund, or even a thematic fund (like IT or Pharma) if you have a high-risk appetite and strong conviction.

A healthy, decluttered portfolio for a long-term investor might have just 5-7 funds in total. That’s it.

Your Path to a Better 2025

Decluttering your mutual fund portfolio isn’t a one-time event. It’s a healthy financial habit you should practice once a year. By removing the weeds of underperformance and overlap, you allow the strong performers to grow freely. You gain clarity, control, and a much better chance of reaching your financial goals. So take charge, clean up the mess, and step into 2025 with a portfolio that truly works for you.

Disclaimer: This article is for educational purposes only and should not be considered financial advice. Please consult with a certified financial advisor before making any investment decisions.

C.K. Gupta

Hello, I am C.K. Gupta owner of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.