Fund imposed limits
There could be a situation where a fund has an exposure to a particular sector, which can be a significant part of the portfolio. Thus in this situation even though there is a move away from a single stock risk there could result in a sector impacting the performance of the scheme as a whole.
In such a situation, several mutual funds themselves have a limit that they impose upon their fund managers in terms of a sector exposure. This could be something like 25-30 per cent of the corpus of the scheme and hence needs to be taken into consideration. There can be other ways in which this can be done, which once again results in a restriction of investment in a particular theme or some other factor.
In several cases the law might not require such a restriction, but the investor would find that the overall exposure is limited by the fund itself. This provides an additional amount of comfort for the investor.
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