Stock market vs mutual funds: How many stocks one should have in equity portfolio — explained

According to investment experts, one should have fair allocation of amount against each stocks while making one’s stock portfolio. This helps an investor’s absolute investment to grow at a rapid speed. One should create stock portfolio allocating at least ₹50,000 to each stock in a stock portfolio with an absolute value of ₹5 lakh, they said. However, with the passe of time, one can increase fund allocation against each stock or add some more stocks in portfolio because good number of public issues are getting listed these days.

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Speaking on how to make one’s stock portfolio, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “While creating one’s stock portfolio, one has to keep in mind that purpose of this exercise is to generate alpha return against equity mutual funds. So, while allocating funds to one’s stock portfolio, one needs to remain vigilant about this investment goal and choose stocks accordingly. One should keep fair amount against each stock so that it give compounding benefit on one’s return over the time. At the same time, rise in stock price should reflect in one’s stock portfolio return as well. So, proper fund allocation is also an important factor that one can’t afford to ignore while selecting stocks for one’s portfolio.”

On how many stocks one should have in one’s stock portfolio, Mohit Gang, CEO & Co-founder MoneyFront — a subsidiary of Niyogin Fintech said, “In investing one has to often grapple with the question of what should be the right number of stocks in a portfolio. There is no perfect answer to this, but it all boils down to what one can study and track diligently. The ideal number which one can track while pursuing his other jobs & responsibilites simultaneously is 10-12 stocks. This number can be high if you are into stock trading as a profession or could be low if your daily job is too demanding and doesnt leave you with enough time for research.”

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On side effects of having lower number of stocks in portfolio, Gang said that stock portfolio which is limited to 4-5 stocks can be hugely concentrated and again if your conviction or research is not spot-on, it could lead to increased volatilty and risk adding, “Ideally, limiting a portfolio to 10-12 stocks will give you reasonable diversification and ample time to be able to track the news flow.”

How to create your stock portfolio

On stock portfolio strategy that a beginner can follow, Avinash Gorakshkar said, “Equity portfolio can be starteed with around ₹5 lakh in hand allocating at least ₹50,000 against each stock. Later on, one can add more money against their selected stocks. Likewise, they can add more stocks in one’s portfolio as a good numebr of public issues are getting listed on Dalal Street these days.” However, he maintained that number of stocks should not go beyond 15 in one’s stock portfolio. But, when total number of stocks are 15 in your portfolio, then there should be at least ₹1 lakh amount against each share.”

Large-cap vs mid-cap vs small-cap stocks

On how to choose stocks from various segments, Avinash Gorakshkar of Profitmart Securities said, “One should allocate 25 per cent fund to large-caps and rest to mid-cap and small-caps as money comes from mid-cap and large-cap stocks in long term.” However, he advised investors to have proper research of stocks before investing and if needed one should not shy of taking advise from an expert.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Updated: 25 Nov 2023, 03:40 PM IST