You log in to your investing app, determined to pick a mutual fund. The list scrolls endlessly: large cap, mid cap, flexi cap, hybrid, thematic, sectoral. You start comparing expense ratios, ratings, and performance charts. The numbers blur. You bookmark a few. Hours later, you are still unsure. What if you pick wrong?
In the end, you either put your money in a savings account, stay with the fund you chose long ago, or, even worse, decide not to invest at all. It feels safe. It feels rational. But it is not prudence; it is inaction.
The Scale of Choice
India’s mutual fund industry is now massive. As per the Association of Mutual Funds in India (AMFI), total assets under management were about ₹75.61 lakh crore in September 2025. With around 54 fund houses and around 2,345 mutual fund schemes, investors now have more choices than ever.
At first glance, this many funds seem positive. More products, more freedom, more control. But when every fund claims to be “consistent” or “top-rated,” clarity disappears. What you get is noise disguised as an opportunity.
When Choice Becomes the Problem
In theory, more choice should mean better decision-making. In reality, it often leads to confusion, delay, and regret. We call this choice overload. It’s a bias that impacts even the most informed investors.
Behavioural economists describe it as cognitive fatigue. When the brain faces too many similar options, it stops evaluating rationally and starts avoiding the decision altogether. The fear of making the wrong choice becomes stronger than the motivation to make any choice at all.
Open any investing app these days, and you will see how this plays out. There are hundreds of funds with similar names and overlapping portfolios. “Top Rated”, “Best Performer”, “Tax Saver”, “Balanced Advantage”, every label promises better results. But more information does not always lead to better outcomes.
Here’s the thing: new investors delayed starting their first SIP because they felt “overwhelmed by too many options.” That is millions of people losing months or even years of compounding because they could not decide.
Choice overload does not just cause inaction. It also causes regret and churn. Once investors do pick a fund, they often keep comparing it with others they did not choose. If those perform better in the short term, they switch. That constant switching erodes returns and defeats the purpose of long-term investing.
The irony is sharp. The plethora of choices that should empower investors ends up paralysing them.
Excessive choice is not a good idea. It leads to confusion. This costs time, creates missed chances, and results in poor portfolios.
The Hidden Cost of Doing Nothing
Doing nothing feels harmless. You think you are waiting for the right time, or the perfect fund. But in investing, inaction is an active decision.
When you only save your money, inflation eats into your savings. When you remain invested in a fund that no longer fits your goals, you risk stagnation. When you chase the top performer from last year, you may buy high and sell low.
Over time, these behaviours quietly erode wealth. It looks like caution, but it behaves like a loss.
The Reasons Why Investors Choose the Well-Known
Most investors rely on their prior knowledge when they are feeling overwhelmed. They stay with an old fund, a known name, or a brand they trust. But familiarity does not always equal fit.
Your life may have changed since you first picked that fund. Your income, age, goals, and risk appetite may be different. Yet your portfolio remains frozen in time because new choices feel harder than the comfort of staying put.
This defaulting behaviour creates portfolios that are outdated, concentrated, and poorly diversified. It is the investment equivalent of still using a 2010 phone because buying a new one seems tiring.
Building a Decision Framework
Escaping choice overload is not about eliminating options. It is about structuring them. A decision framework brings discipline, clarity, and direction.
Here’s a simple five-step plan for a lean, efficient structure. It gets rid of distractions and helps you concentrate on the important things only.
Step 1: Start With Your “Why,” Not Theirs
Before you click through another list of mutual funds, stop and think about what is most important to you.
Time horizon: Think about the length of time that this money can be in the market. If you have a 10-year investment horizon, you can live through the ups and downs of the market. If retirement is just around the corner, you will need to go for safer options.
Risk tolerance: Be honest with yourself regarding the level of risk you can take. If a 20 percent market decline sends you running for the exit, you might be better off with fund types that are not heavy in equities. Balanced or hybrid funds may give you less anxiety and more sound sleep.
Goal and cost sensitivity: Consider what you are investing for. If you have a long-term goal such as retirement, be careful of the costs as expense ratios grow. If your goal is short-term, then stability and liquidity should take precedence over chasing profits.
Without these anchors, you will drift through hundreds of schemes without a compass.
Step 2: Cut 2,000 Funds Down to 10
Once you have defined your anchors, start filtering the universe.
- Prefer fund houses with at least 10 years of performance history.
- Choose funds where the expense ratio lies in the lower half of the category.
- Examine long-term returns over 5-10 years, not just the last 12 months.
- Check for style consistency. A fund that suddenly shifts from large caps to small caps may be chasing trends.
- Match fund type to your time horizon and risk appetite.
These filters usually reduce the list from 200 to under 10 funds. This creates a manageable shortlist for review.
Step 3: Build a Lean, 3-Fund Portfolio
A strong portfolio does not need to be large. Three to four funds can deliver the diversification that most investors need.
Below is an example of how a balanced portfolio structure might appear:
- A flexi-cap mutual fund as a core holding
- A dedicated small-cap/mid-cap mutual fund for high-growth potential
- A low-risk liquid fund to temporarily park your surplus funds
- Optional: An international or thematic fund if your time frame is long and you accept the risks
Having a smaller portfolio is not only easier to track but also less expensive to manage and more effective. The introduction of more funds usually results in overlapping holdings and unnecessary complications.
Step 4: Review Annually, Not Daily
After you have constructed your portfolio, maintain it. Continual adjustments result in more harm than good.
Conduct a yearly investment review or at times when there is a significant change in your personal situation. Do not follow the so-called “star fund” or respond to market news. Regularity and patience usually win over frequent switching.
The rebalancing of your holdings should be done yearly. If the equity part of your portfolio has gained too much compared to the debt part, then realize some profits. If the debt part has gone below the target, then fill it up. Minor, consistent changes keep your portfolio in sync with your goals.
Step 5: Write It Down to Make It Real
Keep everything in writing. List your goals, risk tolerance, fund selection, and the reasoning behind them.
When markets turn volatile or new funds flood your feed, your document reminds you why you invested in the first place.
Why This Approach Works
This framework simplifies decision-making by reducing complexity at every stage.
- It limits choices, cutting through noise and reducing cognitive fatigue.
- It connects your portfolio to your goals, not just performance numbers.
- It keeps you invested, which is the single biggest driver of long-term returns.
- It promotes discipline, helping you stay focused on your plan rather than chasing short-term winners.
Reassessing Your Investing Habits
If you have been waiting for months to “find the perfect fund,” it is time to be honest with yourself. Inflation does not pause while you decide, and neither does opportunity.
Ask yourself:
- How long has your money been sitting idle in your savings account?
- What has that delay already cost you in missed compounding?
- Are you clinging to an old fund simply because it feels familiar?
- Have your life goals or risk appetite changed since you first invested?
- When was the last time you reviewed your portfolio with clear criteria instead of emotions?
You do not need to pick from 200 funds. You need one plan, a few strong funds, and the discipline to stick with them. The sooner you begin, the better your future self will thank you.
Disclaimer: The purpose of this article is only to share behavioral insights, market data, and thought-provoking opinions. It is not investment advice. If you wish to invest, please consult a certified advisor. This article is strictly for educational purposes only.
Chinmayee P Kumar is a finance-focused content professional with a sharp eye for investor communication and storytelling. She specializes in simplifying complex investment topics across equity research, personal finance, and wealth management for a diverse audience from first-time investors to seasoned market participants.