How many holdings is enough?
More holdings feel safer. Here is what the prices of India’s large and mid-cap stocks say about where that stops being true, and what no number of holdings can do.
In short
- Most of the benefit comes early. Over 7.7 years of prices, a typical one-stock portfolio swung about 34.7% a year; 15 stocks, about 19.4%; 50 stocks, about 18.2%. Most of what adding names could do was done by about 8 of them.
- Funds in one category share a pond. A large-cap fund must keep at least 80% of its money in the 100 largest companies, so two of them cannot help owning many of the same names.
- No number of holdings stops a market fall. At the worst point in these years a typical 50-stock portfolio was down −37.5%, a 15-stock one −38.2%, and the index −37.9%.
What adding a holding does
The line is the typical yearly swing (the volatility) of a portfolio with that many stocks, picked at random from today’s Nifty LargeMidcap 250, held at equal weights and evened up at the start of every month. For each size, 5,000 random portfolios were drawn: the line is the middle one, and the shaded band runs from the calmest tenth to the wildest tenth.
At 15 stocks: about 19.4% a year.
| Stocks | Typical yearly swing | Typical deepest fall |
|---|---|---|
| 1 | 34.7% | −51.4% |
| 15 | 19.4% | −38.2% |
| 30 | 18.6% | −37.7% |
| 50 | 18.2% | −37.5% |
| All 196, equal weight | 17.8% | −37.4% |
| The index | 17.3% | −37.9% |
Daily closing prices from Yahoo Finance, adjusted for splits and bonuses, Jan 2019 to Sep 2026, for the 196 of today’s Nifty LargeMidcap 250 companies with a full price history over those years. So only companies still listed today: that flatters the picture. The index is the Nifty 100 and the Nifty Midcap 150 at 50:50. Volatility is the standard deviation of daily returns, scaled to a year: one kind of risk, not the chance of losing money. Not a forecast, and not a recommendation of any number of holdings.
Why your funds may be the same fund
Every Indian mutual fund carries a category, and the category fixes where most of its money must sit. Under the market regulator’s rules (October 2017; flexi cap was added in November 2020):
- Large cap: at least 80% in the 100 largest companies by market value.
- Mid cap: at least 65% in the 101st to the 250th.
- Small cap: at least 65% from the 251st down.
- Flexi cap: at least 65% in shares, of any size.
So two large-cap funds fish in the same pond of a hundred companies, and much of what one holds the other holds too. Owning both adds a second statement to read, not much variety. This page does not publish an overlap percentage between funds: that needs each fund’s monthly portfolio, which this site does not read.
The tail
Arithmetic decides how much a small holding can do. A holding that is 1% of your money and doubles adds 1% to the whole; if it halves, you lose half a percent. Twenty holdings at 1% each are a fifth of your money that can only move your result a little, and twenty things to follow.
Map my holdings counts yours: how many sit under 1% of the total, and how much they add up to.
What diversification can’t do
Spreading money over more companies protects you from one company’s bad news. It does not protect you from the whole market falling. The index’s deepest fall in these years bottomed in Mar 2020 at −37.9%; the deepest fall of a typical 50-stock portfolio was −37.5%, and of a typical 15-stock one −38.2%.
That is why money you will need within the next few years does not belong in shares, however many you own. What can go wrong, and how badly.
A map in three jobs
A portfolio is easier to hold when every rupee has a job. One simple map, as general information rather than advice:
- Safety money. An emergency fund, and money you need within a few years, somewhere that does not fall with the market.
- A core that needs nothing from you. One or two broad index or diversified funds, fed by a SIP, that you do not have to watch.
- If you want one, a single sleeve with written rules. Your own rules, or a model portfolio’s, for the part you want to run actively, sized so that its worst fall is one you could sit through.
Where each MindForge book is built to sit, as a core, a core-plus or a satellite, is on the homepage: How much of your money this is supposed to be. How much belongs anywhere is your decision, and a qualified adviser’s.
If you decide to simplify
Moving out of a fund or a stock costs something that staying does not: tax on the gain (shares and equity funds held over a year: 12.5% on gains above ₹1.25 lakh in a financial year; held a year or less: 20%), and any exit load, often 1% inside the first year.
One slow way to simplify: stop adding to what you no longer want, send new money to the plan you do, and use each year’s ₹1.25 lakh of tax-free long-term gains. A MindForge book can run on new money only, and when you match your demat to it you can mark the shares you held before you started: its dashboard never sells those.
General information, not tax or investment advice.
Questions
How many stocks should I own?
There is no single right number, but the data on this page shows where adding names stops helping: most of the fall in how much a portfolio of large and mid-cap stocks swings comes from the first handful of names, and after a few dozen, adding more barely changes it. Beyond that, more names mostly add things to follow. How many you hold is your decision; this is general information, not advice.
Is it bad to own too many mutual funds?
Not bad, but often redundant. A fund’s category fixes where most of its money must sit: a large-cap fund, for example, keeps at least 80% in the 100 largest companies. So several funds in one category can behave much like one, and each extra fund adds a statement to read rather than much variety. This is general information, not advice on your funds.
Does diversification protect me in a crash?
It protects you from one company’s bad news, not from the whole market falling. In the fall of early 2020, a typical fifty-stock portfolio of large and mid-cap stocks fell about as far as a fifteen-stock one, and about as far as the index. Money you will need within the next few years does not belong in shares, however many you own.