Ever noticed how many stocks you are buying while investing in a mutual fund scheme? Data from Value Research Online shows that large-cap funds, on an average, hold around 38 shares, mid-cap funds around 50 and 52 for balanced funds (65-70% of their assets in equity). Stocks in a portfolio represent its diversification; it means spreading across more than one unit. For mutual fund portfolios the larger the number of securities, stocks or bonds, the more diversified it is said to be.
According to Harry Markowitz’s Modern Portfolio Theory, investors get the benefit of better performance from diversifying their portfolios as it reduces the risk of relying on only one security to generate returns. But who decides how many securities are needed to maximise return with adequate risk? While some studies have shown 20-30 stocks are optimum, putting an exact number will depend on many factors.
