Stock market vs mutual funds: In the name of diversification, a stock market investor ends up adding a huge number of stocks in his stock portfolio, which look more like a mini mutual fund instead of a stock portfolio. So, it is very important for an investor to keep a limited number of stocks in one’s portfolio and earn enough with increase in price of portfolios.
According to investment experts, one should have a fair allocation of amount against each stock while making their stock portfolio. This helps the absolute investment of an investor to grow at a fast rate and hence allocation at least ₹50,000 for each share in a share portfolio with an absolute value of ₹5 lakhs would be a good start for a stock market investor. However, with the passage of time, one can increase the fund to each share or add a few more shares, because a good number of public issues are listed these days.
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Talking about how to build your stock portfolio, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “While building your stock portfolio, one must remember that the objective of this exercise is to generate alpha returns against equity mutual funds over the period .of investment.So, while allocating funds to one’s stock portfolio, one must remain vigilant about this investment objective and select stocks.One must keep a fair amount against each stock so that it gives a compound return on its return over time.At the same time . time, a 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 cannot ignore when choosing 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 often has to 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 one can track while attending to his other work and responsibilities at the same time is 10-12 stocks.This number can be high if you are involved in stock trading as a profession or could be low if your day job is too demanding and doesn’t leave you enough time for research.”
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On side effects of having a lower number of stocks in a portfolio, Gang said that stock portfolio which is limited to 4-5 stocks can be extremely concentrated and again if your conviction or research is not correct, it could lead to increased volatility and risk. adding, “Ideally, limiting a portfolio to 10-12 stocks will give you reasonable diversification and enough time to be able to track the news flow.”
How to create your stock portfolio
On an equity portfolio strategy that a beginner can follow, Avinash Gorakshkar said, “Equity portfolio can be started by around. ₹5 lakh in hand allocating at least ₹50,000 against each share. Later on, one can add more money against their chosen shares. Likewise, they can add more shares in one’s portfolio because a good number of public issues are listed on Dalal Street these days.” However, he maintained that number of shares should not go beyond 15 in one’s share portfolio. But, when total no. of shares there are 15 in your portfolio, then there should be at least ₹1 lakh against each share.”
Large-cap vs. mid-cap vs. small-cap stocks
On how to pick stocks from various segments, Avinash Gorakshkar of Profitmart Securities said, “One should allocate 25 percent funds to large-caps and rest to mid-caps and small-caps, because money comes from mid-cap and large-cap stocks. long term.” However, he advised investors to have a proper research of shares before investing and if necessary one should not be afraid to take advice from an expert.
Disclaimer: The views and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Updated: 25 Nov 2023, 15:36 IST