Concentration Risk — Mutual Fund Term Explained

Risk from over-exposure to a single stock, sector or theme. High concentration amplifies both gains and losses.

Concentration risk occurs when a large percentage of a fund's portfolio is in a single stock, sector or theme. SEBI limits single-stock exposure to 10% for most funds; sector funds have concentration by design.

Related terms

• Portfolio Turnover Ratio — How frequently a fund buys and sells its holdings. High turnover = more trading costs. Lower is generally better for long-term investors.
• Benchmark — The market index a fund is compared against. A fund manager must beat the benchmark consistently to justify active management fees.
• Sectoral Fund — An equity fund investing at least 80% in a single sector — banking, pharma, IT, etc. High concentration risk and cyclical performance.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.