Since they hold diversified portfolios, mutual funds are less risky.
In some cases, though, concentration in a few stocks is inevitable. For instance, sector funds. Since they invest in particular sectors, their investment universe is far smaller than, say, a general equity fund. A case in point is the JM Basic Fund, a scheme that invests only in the petrochemical sector. At one time this scheme had invested 85 per cent of its corpus in just one stock, Reliance Industries.
Concentration, to a lesser degree, also exists in the so-called diversified schemes. Such aggressive fund management is a double-edged sword: it can yield market-beating returns or leave you scraping the bottom of the barrel. A case for looking at a scheme’s portfolio before committing money to it.
