New Delhi, Oct. 15 -- You might believe that the more mutual funds you own, the lower your risk will be. However, spreading your investments too thinly across many schemes may reduce risk only marginally, while complicating portfolio management and eroding potential returns. This is called overdiversification.

It occurs when you own multiple mutual funds that, despite appearing different, have similar holdings, styles, or categories, so their performance moves together. If you are someone aiming to build wealth steadily over the years, avoiding this trap is important, and that is what we are going to cover today.

Here is how you can avoid overdiversification:

Before you compare mutual fund schemes, it is important to clarify your finan...