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Diversify by looking through your entire equity portfolio—not just counting how many shares or mutual funds you own. Check the underlying holdings of direct stocks, active funds and index funds, then assess whether they are concentrated in a few sectors or in large-, mid- or small-cap companies. There is no universally right allocation: it depends on your goals, time horizon, risk capacity and existing investments.
Start with the portfolio, not the number of funds
Several funds can own many of the same companies. Adding funds therefore does not automatically add diversification. Review direct shares together with the underlying holdings of every equity mutual fund or index fund, where those details are available.
SEBI describes diversified equity-oriented schemes as spanning different sectors or market capitalizations. By contrast, sectoral and thematic schemes focus on particular sectors, industries or themes. SEBI cautions that they carry higher risk because they lack diversification across industries. A broad fund combined with several focused funds can still leave a portfolio dependent on a small number of sectors.
Understand the market-cap labels
In SEBI’s classification, company size is based on rank by full market capitalization, not a fixed rupee threshold:
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- Large-cap: ranks 1–100.
- Mid-cap: ranks 101–250.
- Small-cap: rank 251 onward.
Mutual funds use the list prepared by AMFI. Because the categories are rankings, a company’s segment can change as the list is updated. Check the current list used by a fund rather than treating a label as a permanent description. SEBI scheme material on market-cap definitions.
Compare fund types by what they hold
| Investment type | What to examine | Key qualification |
|---|---|---|
| Broad index fund | The index’s constituents and weights, plus the fund’s expense ratio and tracking error. | It seeks to mirror a specified index; costs and tracking error can make returns differ from that index. The index’s breadth determines how diversified the exposure is. SEBI: Index Mutual Funds. |
| Active diversified scheme | The scheme’s mandate, holdings, sector mix and market-cap exposure. | The category name alone does not establish the scheme’s precise exposure or guarantee lower losses. |
| Multi-cap fund | Whether the mandated minimums fit the role you want the fund to play. | SEBI’s February 26, 2026 circular requires at least 75% of total assets in equity and equity-related instruments, including at least 25% of total assets in each of large-, mid- and small-cap companies. This is a fund-category rule, not a personal allocation recommendation. SEBI circular. |
| Sectoral or thematic scheme | Its chosen sector or theme and how that exposure overlaps with the rest of your portfolio. | Concentrated exposure can make results depend more heavily on the selected sector or theme. SEBI: Thematic/Sectoral Mutual Funds. |
Do not assume a flexi-cap fund has the multi-cap fund’s three 25% minimums. The cited SEBI circular establishes the multi-cap rule; assess a specific flexi-cap scheme using its current documents and mandate.
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Check sector concentration with a look-through review
Group each direct share and each fund’s underlying holdings by sector. Add exposures across investments rather than reviewing each account or fund in isolation. Also note where a broad index fund and a sector fund both add exposure to the same industry.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchSEBI’s May 2025 deployment report recorded banks at 20.91% and software at 5.21% of equity-fund AUM. These are figures from that monthly report—not recommended weights, current 2026 allocations or a description of every investor’s portfolio. They illustrate why the sector mix inside funds can matter even when an investor does not buy individual shares in those industries. SEBI: Deployment of Equity Funds Monthly Report for May 2025–2026.
A practical review sequence
- Inventory your equity exposure. List direct stocks and every equity mutual fund or index fund you own.
- Look through the funds. Where holdings or index composition are available, group the underlying companies by sector and by large-, mid- and small-cap segment.
- Find duplication. Identify companies or sector exposures appearing across multiple funds and direct holdings. Fund count is not a substitute for checking overlap.
- Separate broad exposure from focused positions. Decide whether sectoral or thematic holdings are deliberate, and recognize that they increase dependence on the chosen sector or theme.
- Compare the mandate and implementation. Review each fund’s underlying index or mandate, holdings and market-cap exposure. For an index fund, also consider expense ratio and tracking error.
- Revisit when circumstances change. Review the mix if your goals, capacity for risk or holdings change. Your personal circumstances—not a fund label—determine whether the exposure remains suitable.
SEBI’s July 2025 scheme disclosure describes diversified equity-oriented schemes as spanning sectors or market capitalizations. That description can help distinguish broad mandates from focused ones, but it does not tell you what allocation is right for you.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why there is no standard allocation to copy
The SEBI sources define fund categories and explain risk characteristics; they do not establish an optimal sector or market-cap mix for every individual. A suitable allocation depends on factors such as your investment goals, time horizon, risk capacity and existing portfolio. Treat category rules as a way to understand what a fund must do—not as instructions for how much of your own money to place in each segment.
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