Hi there,
The e-series funds are definitely some of the better funds out there and the no fee transaction is a bonus for TD customers. In terms of the approach, there is really no right approach here.
One of the reasons investors invest in individual equities is because of fund fees, more control and for dividend investors, they tend to benefit more from dividend growth. However, this takes time and effort as retail investors have to stay on top of their investments.
When i first started out - I invested in mutual funds and as i became more comfortable slowly transitioned away from funds. However, there is nothing wrong with a portfolio of individual stocks + funds. It is likely easier to manage, and investors can more quickly achieve diversification.
As you pointed out however, you will want to pay attention to allocations. It's OK to have duplicate positions, but investors will want to ensure that the duplication doesn't lead to greater than wanted exposure. For example, if an investor has a 50/50 split (funds/stocks) and is comfortable with Banks accounting for 10% of their portfolio - then having 10% of the overall portfolio individual bank stocks + an e-series fund that has 10% big banks - all of a sudden the exposure in that area is at 20%. That may be too high. IMO, it is definitely something to take into account when buying individual stocks and complementing with funds (or vice-versa). It should not be difficult to track if an investor limits the # of individual stocks to a manageable amount.
Either way, choosing to average into a TD e-series fund, continuing to buy individual stocks, or doing both is an individual decision. All are fine, but investors will want to be careful that they aren't overexposed and that whatever combination is used, meets the investor's plan and risk tolerance.
Hope that helps.
Mat