A colleague tells you he is finally getting serious about investing. Ten thousand rupees a month, split across five different funds — two thousand each. He is pleased about the split. Don't put all your eggs in one basket, he says.
He also has a home loan EMI of fifty thousand rupees, monthly expenses of thirty thousand, and a salary of one lakh.
He has not diversified anything. He has counted his eggs and forgotten to look at the basket.
The metaphor counts containers, not contents
The eggs-and-baskets line is repeated so often that people stop asking what the basket is. Five funds feels like five baskets because it is five folio numbers and five apps. But if all five buy shares in broadly the same market, there is one basket underneath them, and all five statements go red in the same week. Nothing was spread except the paperwork.
A basket is not a product. It is a source of risk. Two funds run by different companies with the same mandate are one basket. A fixed deposit and a share are two, because what would hurt one is not what would hurt the other.
It is also worth knowing that the line — usually attributed to whichever famous investor is nearest to hand — is not settled wisdom. Serious investors have argued both sides for a century, including the case for holding very few things and watching them closely.
The basket nobody counts
Go back to the colleague. Of his one lakh salary, thirty thousand goes on living and fifty thousand on the home loan. Roughly seventy per cent of what is left after he eats is committed to a single asset, in a single city, bought with borrowed money, and it cannot be sold in parts.
None of that appears in his investment review, because a house does not arrive as a monthly statement. But it is by far the largest position he holds, and the ten thousand rupees split five ways is a rounding error beside it. That is the blind spot the metaphor creates: people diversify the small, visible, easy-to-move part of their money and leave the enormous, immovable part unexamined.
Three things make a leveraged home a bigger concentration than it feels like:
- It is borrowed. The loan magnifies the outcome in both directions. You feel the whole property's movement while owning a fraction of it outright.
- It is indivisible. If you need eight lakh, you cannot sell eight lakh of a house. You sell all of it or none of it, and that takes months.
- It sits on top of your job. The local economy that sets property values in your city is often the same one that pays your salary. If one turns, the other tends to turn with it.
"But I'm saving tax on it"
This sentence ends the conversation in most households, and it deserves a closer look.
A deduction does not refund the interest. It reduces the income on which tax is calculated, so what comes back is a fraction of what went out. You are still paying the interest; you are getting relief on part of it.
Two details widen the gap. The deduction on home loan interest has been capped for years — the figure has been revised, so check the current position — so in the early years of a large loan, when interest is heaviest, a substantial part of what you pay gets no relief at all. And which deductions you can claim depends on which tax regime applies to you. The default regime changed a few years ago, and the one most people had in mind when this reasoning became popular is no longer automatic.
None of which makes buying a home a mistake. A home you live in does something no financial asset does: it houses you, and it replaces rent, which is a real and rising expense. That value appears on no return calculation.
The actual point
The question worth asking is not "how many funds am I in". It is: if one thing in my life went badly wrong, which one would take the most down with it?
For most salaried people the answer is not a share or a fund. It is one job, one city, one property and one loan, all quietly pointing the same direction. Splitting ten thousand rupees five ways does not touch it. Find where your real concentration sits before diversifying the part that is already small.
This article is general information for education only. It is not investment advice and does not take account of your circumstances. Investments in securities are subject to market risks; please read all related documents carefully before investing.
