Glossary
Concentration Risk
The danger of having too much of your money in a single stock or sector.
Simple explanation
Imagine carrying 10 eggs. If you put them all in one basket and drop it, you lose everything.
In investing, if you put 50% of your money in one stock, you are 'concentrated'.
If that one business fails, your entire wealth takes a huge hit.
Concentration risk is not limited to individual stocks. You can also be concentrated in a single sector. For example, if 70% of your portfolio is in IT stocks like TCS, Infosys, and Wipro, a slowdown in global tech spending could drag all of them down at once.
SEBI classifies Indian mutual funds by market-cap categories, and even fund managers are required to diversify. As a retail investor on platforms like Zerodha or Groww, you should aim for no single stock to exceed 10-15% of your total portfolio value.
In the Indian market, events like the Adani crisis of early 2023 showed how concentration risk plays out in real life. Investors who had a large chunk of their wealth in Adani group stocks saw their portfolios drop 30-50% in days, while diversified investors barely felt the impact.
A good way to monitor concentration risk is to check your portfolio's sector-wise and stock-wise allocation every month. If any single holding has grown beyond your comfort level due to price appreciation, consider rebalancing by booking partial profits and redeploying into other sectors or asset classes like gold ETFs or debt funds.
Real-world example
Rohan has ₹10 Lakhs in his demat account. He invests ₹5 Lakhs in HDFC Bank and ₹5 Lakhs across Reliance, TCS, and a Nifty 50 index fund. When HDFC Bank fell 20% during the 2020 crash, Rohan's portfolio dropped only about 10% because his other holdings on NSE cushioned the blow. Had he put the entire ₹10 Lakhs in HDFC Bank alone, he would have lost ₹2 Lakhs instead of ₹1 Lakh.
See how PortoAI helps you understand and manage concentration risk in your own portfolio.
Try it in PortoAIUnderstand the concept. Now see it in your portfolio.
Connect Zerodha or Groww in 2 minutes. You confirm every order. Get risk checks, position sizing, and portfolio context before every trade.
You confirm every order · 2-minute setup · No card required · Cancel anytime