There’s a point at which adding more investments doesn’t reduce risk—it just reduces clarity.
For high-net-worth individuals, family offices, and institutions, diversification is often regarded as the golden rule of risk management. And while the principle holds good, execution matters more than ever.
At Growmont, we routinely review portfolios with 30, 50, even 100+ individual holdings, scattered across asset classes, geographies, and fund styles. When asked, many investors struggle to express a clear rationale.. This is where diversification becomes noise, not strategy.
Quite often, we see portfolios overloaded with positions. All in the name of “diversification.”
However, True diversification isn’t about quantity.
It’s about how your investments work together, how they reflect your risk profile, and how they drive your long-term goals.
At Growmont, we work with high-net-worth individuals, family offices, and institutional investors to cut through the clutter—designing portfolios with clarity, conviction, and strategic intent and bring purpose back to your portfolio.
The Logic Behind Diversification — And Where It Breaks Down
Diversification is fundamentally about reducing unsystematic risk—the risk associated with individual assets or sectors. By allocating across uncorrelated instruments, investors aim to smooth out volatility and protect your downside.
But there’s a crucial nuance here: diversification is effective only to the extent that the assets are truly independent in behaviour and risk profile. Beyond a certain point—typically 20 to 30 holdings in equity-based portfolios—the added risk-reduction benefit becomes negligible. What investors often don’t realise is that they are holding different products with similar underlying exposures.
It’s not diversification. It’s a duplication.
At Growmont, we help investors move from illusion to intention—designing portfolios that are not just
When diversification goes too far, it stops helping and lead to
- Mask underperformance, where weaker investments piggyback on better-performing ones, making it harder to make strategic decisions.
- Create redundancy, Investors end up investing in the same companies, sectors or regions. There is repetition without adding much value.
- Erode alpha, by making the portfolio behave more like a market index, rather than capturing unique opportunities.
- Increase complexity, with bloated holdings that are harder to monitor, rebalance, or exit.
What the investor is left with is a portfolio that looks diversified, but offers neither true downside protection nor performance edge.
The High-Net-Worth Problem: Diversifying for the Sake of It
The temptation to diversify widely is stronger for HNIs and institutional investors. With greater capital comes greater exposure to varied products—often pitched through multiple advisors, platforms, and distributors. The logic seems sound: spread out capital, access more opportunities, reduce risk. But that logic breaks down without discipline.
For example, we’ve seen family offices holding multiple large-cap mutual funds from different AMCs, each with a 90% overlap in top holdings. We’ve worked with institutions carrying exposure to over a dozen AIFs, with little differentiation in their core strategies. What appears on the surface to be diverse is, in truth, a high-risk bet on a narrow band of ideas—just in different wrappers.
This kind of over-accumulation results in portfolios that are
- Hard to measure,
- Hard to optimise, and
- Nearly impossible to narrate clearly
And if you can’t explain your portfolio with conviction, you’re unlikely to control its outcomes.
Dilution in Practice: What It Looks Like
To understand the risk of dilution, you have to look beyond the number of holdings and focus on correlation and concentration. Here’s what portfolio dilution commonly looks like in practice:
- Holding three or more mutual funds in the same category, such as large-cap equity. Despite the variety of names and fund houses, the underlying holdings—Infosys, Reliance, HDFC Bank—are similar.
- Owning multiple real estate investments in a single city or micro-market. Though the properties may differ in name or size, the underlying economic exposure—local demand, zoning, regulatory risk—is duplicated.
- Accumulating passive ETFs and index funds across markets, only to realise that most track the same broad indices with slightly different tracking errors.
- Duplicating sector exposure across vehicles like PMS, AIFs, and direct equity, which may unknowingly lean into the same macro trends or themes.
This leads to a situation where market stress impacts a significant portion of the portfolio simultaneously, negating the assumed benefits of diversification.
So, What Does Smart Diversification Look Like?
The goal is not to avoid diversification but to make it deliberate. Smart diversification is intentional, curated, and tied to outcomes—not quantity. At Growmont, our approach involves:
- Understanding correlation beyond asset class labels—analysing how various holdings behave under market stress or during rate shifts.
- Strategic asset mix, where alternatives like private equity, structured products, and global exposures are included not for novelty, but to fill genuine risk-return gaps.
- Factor-based diversification, which recognises that exposures like duration, credit quality, or leverage behave differently under different conditions—even within the same asset class.
- And finally, pruning with purpose. At Growmont, we routinely cut assets that add no unique value or create unintentional drag, freeing capital for higher-conviction ideas.
This process makes the portfolio sharper, more aligned with your financial goals, and far easier to manage over time.
When Complexity Hurts Control
Over-diversification doesn’t just harm returns—it erodes control.
Imagine trying to rebalance a portfolio with 75 instruments spread across five platforms, including some with long lock-in periods and irregular reporting. The administrative load alone—tracking performance, filing taxes, understanding fee structures—can eat into both – Time and Returns.
Tax inefficiencies begin to creep in as portfolios become bloated. Rebalancing becomes more theoretical than practical. And the investor’s ability to act swiftly in changing conditions is reduced, precisely when agility is what matters most.
Control, in a financial context, isn’t about micromanagement—it’s about clarity and purpose. And when complexity gets in the way of either, your portfolio stops serving your goals.
Growmont’s Approach: Lean, Strategic, Intentional
Our role at Growmont is not to fill your portfolio with what’s available—but to design it with what’s necessary.
We see portfolio construction as a balance of engineering discipline and strategic insight. That’s why we:
- Conduct overlap analysis, identifying hidden redundancies across products and platforms
- Map real exposure, uncovering where the portfolio is unintentionally concentrated or overleveraged
- Stress test for correlation risk, especially in volatile markets or liquidity-constrained environments
- Build conviction portfolios, with each component serving a clear, measurable role
Our in-house research ensures that decisions aren’t made reactively, but strategically—rooted in forward-looking risk perspectives and long-term vision.
Conclusion: Simplify Without Compromising Sophistication
In wealth management, more is not always better. A portfolio with fewer, more purposeful holdings will often outperform is starting to feel morone bloated with redundant exposures and passive complexity.
If your portfolio seems more like a collection of ideas than a structured strategy, it may be time to simplify—without compromising on sophistication.
At Growmont, our financial solutions are crafted to help you reclaim that clarity. Not by shrinking your potential, but by amplifying your intent.
Because in the end, clarity is not just about peace of mind—it’s a strategic edge. Contact us today.