Tipping Point: Beware of concentration risk in funds

Funds that are more concentrated can give you higher returns but will also be more volatile

One of the things that make mutual funds more or less risky is whether they take concentrated or diversified bets. A few measures can tell you whether a fund takes more diversified or concentrated exposure.

The first is number of stocks in the portfolio. Among all market-cap oriented funds, Sahara Super 20 holds the least number of stocks in its portfolio at 29, while Reliance Small Cap holds the highest number of stocks at 104.

The former takes more concentrated bets than the latter. Similarly, if exposure to top three sectors is higher than the median,