The extent of diversification is driven by the mutual fund's strategy and the market segment it invests in
Diversification is an important parameter to evaluate a mutual fund portfolio. A diversified portfolio implies lower risk since the poor performance of one or a few holdings will be compensated by the better performance of others in the portfolio. The downside to a diversified portfolio is that the advantage from the outperformance of some securities will be limited since they are only a small portion of the portfolio.
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