The first mistake is poor balance in fund selection—either too much or too little. “We’ve seen client portfolios with 40 or 50 mutual funds,” said Yadav in an interview to CNBC-TV18. “That’s too much diversification. On the other hand, some newer investors end up with only three or four funds, which leads to over-concentration.” Yadav recommends keeping 8–12 mutual funds in an equity portfolio, with no single fund accounting for more than 15% of the total.
The second mistake involves skewed allocation across market capitalisations. Investors often get carried away by recent returns, heavily allocating to mid- and small-cap stocks, which have outperformed large-caps in recent years. “As a thumb rule, India’s overall market cap is 70–75% large-cap, 20–25% mid-cap, and 5–10% small-cap. That can guide your allocation,” he advised.
Third on the list is a lack of diversification in investment style. Growth, value, quality, and momentum are different investing approaches—and each goes through cycles. “A good way to implement style diversification is by investing across different AMCs,” said Yadav. “Each AMC tends to lean towards a particular style. Don’t put more than 30% of your portfolio with one AMC.”
The fourth mistake is rushing into new fund offers (NFOs) without a proven track record. Yadav recommends only considering NFOs when they offer a truly differentiated theme that isn’t already well-covered in the market. Otherwise, it’s better to wait and assess performance.
Finally, Yadav warns against overexposure to thematic and sectoral funds. “By the time a sector becomes popular, the big rally may already be over. Limit your exposure to these funds to 10–15% of the overall portfolio,” he said.
Yadav also shared that Sanctum Wealth has recently started booking profits in gold, where they were overweight for two years. They’re gradually reallocating to equities, given the improving macro environment in India. “If there’s a correction in equities triggered by global market risks, use that opportunity to buy more,” he advised.
As investors navigate turbulent markets, Yadav’s advice is clear: avoid extremes, maintain balance, and stick to a structured allocation plan.
Below is the excerpt of the interview.
Q: I want to start with a quick mood check first, because like I said, it’s been so noisy, right? All kinds of news, tariffs, and Donald Trump saying the whole world has to be reset. And geopolitics—what’s the feedback you’ve received from clients? What are they saying? Are they still buying every dip?
Yadav: I think there’s a little bit of concern among investors as well. They’re hesitant to commit too much capital at this point. However, the last quarter saw such a one-way run that they’re also fearful of missing out on the rally. So, most of them are staggering their investments. That’s what we’re suggesting to clients—that instead of fully staying away from equity, stagger the money over a period of time so that you get participation. And if there’s a correction in the market for any reason, that could be an opportune time to add more.
Q: Generally, I mean, as a house view right now when you talk about any broad portfolio advisory—I know it’ll differ by individual—but are you fully overweight on equity? Is it more equity-skewed? Gold has done so well. People are asking themselves these questions—where should I be, where should my money go?
Yadav: We’ve been overweight on gold for a while—actually for the last two years. We went overweight when the Ukraine-Russia crisis broke out in 2022 and have stayed overweight since then. Now, we’re starting to book a little profit because it’s been a stellar rally for gold. We’re booking some profits and adding a bit to equities.
If you look at Indian markets, things have only improved. The macro environment has gotten better. The government is spending, the RBI has cut rates by more than 1%, and it’s supporting liquidity through open market operations. So, the overall macroeconomic environment in India is improving.
On the other hand, earnings sort of bottomed out last quarter. Expectations are that they will keep improving quarter-on-quarter, and the second half of this financial year should be better. That’s why we’re saying—slowly, gradually add to equities and don’t miss out on the rally. If there’s a correction triggered by global market risks, use that opportunity to buy more.
Q: So, equity would be the one big asset class that you’re advising investors to put their money into. What else in terms of asset classes?
Yadav: In gold, we still have some allocation—we’re not fully exiting. Generally, our model portfolio allocation is about 10%. Right now, we’re closer to 12%, so slightly overweight on gold. On the debt side, we’re suggesting it may be time to book out from long-duration and add to conservative debt like corporate bond funds, and use income plus arbitrage as tax-efficient vehicles for debt allocation.
Q: But now I want to get to the exciting part—because the way Alekh has done this is he’s going to encapsulate all the mistakes we end up making in five mistakes to avoid list.
Yadav: I think the first mistake we typically see in client portfolios is over-concentration or over-diversification. Generally, investors who have been investing for a long time—HNIs with larger portfolios—tend to accumulate too many mutual funds. We’ve seen client portfolios with 40 or 50 mutual funds. As we know, each of these mutual funds has about 50–60 stocks. So overall, you end up owning around 1,000 stocks—almost the entire market. That’s too much diversification.
On the other hand, newer investors often go the other way. They end up with just two or three, maybe four or five mutual funds, and have a very concentrated portfolio. There again what happens is, if one fund performs well and they entered at the right time, they may end up with 20–30% in that one mutual fund. That’s too much concentration. Our ideal approach is anywhere between 5–15% allocation to a single mutual fund, which means around 8–12 mutual funds on the equity side is more than enough. That should cover it.
Q: This is something people always grapple with. And sometimes they have multiple advisors—one portfolio with one, another with someone else. So, you’re saying no more than 8 to 15 funds?
Yadav: Yes, that’s right.
Q: If someone does have a big portfolio right now with like 20–25 funds and needs to clean it up—how do you start?
Yadav: So, that’s where the second point comes in: diversification across market cap as well as investment style. First, look at whether you have funds in each category—some Flexi-cap, some mid-cap, small-cap, large-cap mutual funds. Then, look at diversification across style.
Q: What’s the second mistake?
Yadav: The second mistake is market cap allocation. This is very pertinent right now because we’ve seen a stellar run in mid- and small-caps. They’ve outperformed large-caps—small-cap index has done almost double of large-cap in the last five years. Investors often look at past returns while making decisions, so they may now be skewed toward mid- and small-cap. But these also have cycles—periods of outperformance and underperformance.
As a thumb rule, if you look at India’s overall market cap, around 70–75% is large-cap, 20–25% mid-cap, and the remaining 5–10% is small-cap. That can be your guiding tool. If you’re aggressive, maybe have 40% in mid- and small-caps. If you’re balanced, less than that.
Q: The thing is, over the last couple of years, large-caps haven’t delivered great returns. So, people are shifting to mid- and small-caps looking for better returns. That’s a valid argument, right? Foreign investors aren’t coming in, so you’re not seeing big moves in large-cap stocks.
Yadav: Yes, and that’s why the right way to get large-cap exposure is through Flexi-cap funds. Flexi-caps will have 50–70% large-cap exposure. They’ll pick the right stocks to generate some alpha and also use mid- and small-caps for returns. Some of them have done really well over the last five years. So that’s a better approach than doing just pure large-cap.
Q: What’s the third mistake?
Yadav: The third is style diversification. This is trickier because it’s not very intuitive. Let me explain. One style is growth investing—investing in companies with strong earnings growth where valuation is less important. Another is value investing—buying companies that are cheap, regardless of near-term growth. Then there’s growth at a reasonable price (GARP), which lies between growth and value. And finally, you have quality bias and momentum bias.
These styles also go through cycles. For example, quality has underperformed in the last three years, and investors may avoid quality funds now. But quality could come back. So, it makes sense to have some allocation to each style, with a bias toward what’s working at the moment.
Q: But in practice, how do you apply that? Indian mutual funds don’t necessarily label themselves as growth or value. Portfolios are often a mix. So how do you implement this?
Yadav: The way to do it is to diversify across AMCs. Asset management companies typically have a style. For instance, Axis AMC used to do well when quality bias was working, but now it’s underperforming. So, don’t concentrate your holdings in one AMC. A good thumb rule is not more than 30% of your portfolio in any one AMC. That helps maintain style diversification.
Q: Since you mentioned that, give us some examples of AMCs and their styles.
Yadav: HDFC, for example, tends to be value-oriented. Prashant Jain ran a very value-heavy strategy. Motilal is more momentum and growth oriented. Invesco is balanced—it does a bit of growth and value. Axis AMC has a quality bias historically. UTI doesn’t have a consistent style across the house, but its Flexi-cap fund has had a quality bias.
Q: What’s the fourth mistake?
Yadav: The fourth is about NFOs—new fund offers. These don’t have a track record or a current portfolio you can evaluate. The decision is based purely on a theme or narrative from the AMC. You should be more selective here. If it’s a unique theme with no other fund offering, then it’s okay to consider. But if it’s a well-covered theme like mid- or small-cap, then it’s better to wait and watch performance before investing.
Q: But every time a sector does well, AMCs launch new funds—defence, manufacturing, etc. The long-term narrative may be valid. So, what’s your view—should one invest in these?
Yadav: Defence stocks, for instance, have rallied a lot, helped by India-Pakistan tensions. Some of them have run ahead of fundamentals. Our view is to book profits there. When HDFC launched its defence fund, it was a good time. It’s done well since.
Q: Is there any thematic or sector fund you currently like?
Yadav: We’re biased toward financials. Banks are trading at valuations below historical averages. So, funds with a bias toward BFSI—banking and financial services—are the ones we’re positive on.
Q: What’s the fifth mistake to avoid?
Yadav: The fifth is sector and thematic funds, even if they’re not NFOs. Investors tend to get overexposed. By the time these sectors become popular, the run-up is usually done. So, limit your exposure to thematic funds to around 10–15% of your portfolio. Keep the rest in diversified categories like Flexi-cap.
Q: Let’s recap: five mistakes to avoid in a portfolio.
Yadav: First—too much concentration or diversification. The right balance is around 8–15 mutual funds.
Second—market cap allocation. Maintain balance between large-, mid-, and small-caps.
Third—style diversification. Mix growth, value, and quality strategies.
Fourth—be selective about NFOs.
Fifth—limit exposure to thematic and sectoral funds.
Watch accompanying video for entire conversation.
