Question

investing in large-cap equity funds from different fund families reduces

Answer 1

The aim of diversification is to reduce risk. By investing in different mutual funds, funds of different companies and sectors, even if one sector is failing, other sector minimises the loss. It is called mitigating risk.

On the contrary, if you invest in too many funds and if one of them does exceptionally well, you won't gain much from it. It has small impact on your investment because your investment would be small.

Investing in large-cap equity funds means investing in shares of top companies. Investing in large-cap equity funds from different fund families reduces chances of negative returns because their size makes them less likely to go out of business and so they are safer investment compared to small cap investments.

Yes, they will affected by recession or negative growth of economy but they are less likely to shut down business because they are large enough to sustain that and produce significant returns. But when economy is growing rapidly, large cap funds give greater returns and are worth the premium invested in them.