This ensures that there is not much concentration of risk in a particular stock. This helps the investor in ensuring that their money is being managed properly without undertaking any excessive risk.
There is, however, one situation that the investor has to watch out for because the limit does not prevent a concentration of risk in the portfolio. There could be 5 stocks with a 9 per cent holding limit, which means that the performance of half of the portfolio is determined by just these 5 stocks, as they will have a higher impact on the overall value.
Also see: Fixed maturity plans lose charm