Ch.10 · Risk Measures and Ratios · medium
What is 'portfolio diversification' and how many stocks are typically needed for adequate diversification in an equity fund?
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EXPLANATION
Research shows that 15-25 stocks spread across different sectors provide substantial diversification, reducing unsystematic risk by ~90%. Beyond 30-40 stocks, the marginal diversification benefit diminishes significantly. SEBI's 'focused fund' category (max 30 stocks) reflects this — concentrated portfolios are not necessarily undiversified if the holdings span multiple uncorrelated sectors.
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