What are holdings? Overview, benefits and example scenarios

When you hear someone talk about ‘holdings’, they are typically referring to the various assets or financial instruments owned by an individual or institution. These can include stocks, bonds, mutual funds, real estate, or even precious metals. In this article, we will take an in-depth look at the meaning and importance of holdings, their advantages, and how they specifically apply to mutual funds.

• Table of contents

1. Getting to know the concept of holdings
2. What holdings mean for individual investors
3. Holding ratios across different fund types
4. Mutual fund holdings explained
5. Understanding mutual fund holdings with an example
6. Types of mutual fund holdings in India
7. How mutual fund holdings function

Getting to know the concept of holdings

Let us begin with the term “holdings.” Essentially, the holdings meaning can be summarised as the assets that an investor or an investment fund owns. When someone invests in equity shares, those shares become part of their personal holdings. If they purchase gold or real estate, those will similarly show up as part of what they hold in their broader investment portfolio.

Depending on their type, the advantages of holdings include the potential for returns, diversification, liquidity, risk mitigation, tax benefits and more. By having multiple holdings, investors spread out their risk, making it less likely for a single underperforming asset to significantly dent their overall finances.

What holdings mean for individual investors

New investors often ask, “What does holding mean for individual investors?” In essence, your holdings encapsulate the unique makeup of your investment journey and portfolio.

• Personalised portfolio snapshot: Your holdings are a real-time reflection of how your money is allocated. Whether you have equity shares in large cap firms, bonds issued by reputed companies, or units of a mutual fund, each constitutes a share of your portfolio.
• Risk assessment: If the majority of your holdings are in volatile equity markets, you might experience higher gains when the market rallies but also greater losses during downturns. Balancing equity with debt holdings can help offset potential losses.
• Wealth-building strategy: By periodically reviewing your holdings, you can adjust investments to match life goals – be it a child’s education, a dream home, or a comfortable retirement.

Holding ratios across different fund types

Different types of funds tend to have varying holding ratios—a term that indicates the proportion of different kinds of assets within a fund. In the context of mutual funds, for instance, holding ratios can vary based on the fund category, as follows:

• Equity funds: Typically have a high holding ratio of stocks. They might hold shares across diverse sectors such as IT, pharmaceuticals, and consumer goods.
• Debt funds: Mainly hold bonds, treasury bills, and other fixed-income instruments. These are usually lower in volatility but might offer more modest returns.
• Hybrid funds: Have a mix of both equity and debt holdings. This balanced approach can provide moderate risk and moderate returns.
• Liquid and overnight funds: Primarily hold very short-term instruments, making them less volatile. These funds may offer insta-redemption facilities, allowing investors to withdraw a portion of their money almost immediately.

For each fund category, the holding ratio is shaped by the fund’s objective and the guidelines set forth by the Securities and Exchange Board of India (SEBI).

Mutual fund holdings explained

Now that we have touched upon different fund categories, let’s focus on mutual fund holdings specifically. Mutual funds pool money from various investors and invest in a range of securities like stocks, bonds, or other assets. The specific composition of these securities in a portfolio is referred to as the fund’s “holdings.”

1. Transparency: In India, mutual fund companies are required to disclose their holdings regularly, typically every fortnight or month, depending upon the scheme type. This allows investors to see how their funds are being utilised and whether that is in line with the fund’s stated objectives and their goals.
2. Professional management: Mutual fund holdings are managed by professional fund managers who use research and market analysis to select securities.
3. Accessibility: Investors can choose to put money in a mutual fund via a Systematic Investment plan (SIP) or a lump sum. SIPs let you invest a fixed amount on a regular basis, while a lumpsum is a one-time investment of a significant sum.

Understanding mutual fund holdings with an example

To provide a straightforward example of holdings within a mutual fund, consider the following scenario:

• Fund name: ABC Equity Growth Fund
• Total assets under management (AUM): Rs. 1,000 crore
• Top holdings:
  • Company X (IT): 10% of the fund’s assets
  • Company Y (Banking): 8% of the fund’s assets
  • Company Z (Pharmaceuticals): 7% of the fund’s assets
  • Remaining holdings distributed across various companies

If you invest Rs. 10,000 in ABC Equity Growth Fund, your money is proportionally allocated across all these holdings. This means about 10% of your Rs. 10,000 indirectly goes into Company X, 8% into Company Y, and so on.

This indirect method of holding shares, bonds, or other instruments is what defines mutual fund holdings.

Types of mutual fund holdings in India

When discussing mutual fund holdings in India, it’s crucial to recognise that the composition is guided by SEBI’s categorisation norms. Here are some common types of holding patterns within mutual funds:

1. Equity-oriented holdings: Companies listed on recognised stock exchanges, spanning large cap, mid cap, and small cap categories.
2. Debt-oriented holdings: Corporate bonds, government securities, debentures, treasury bills, and other money market instruments.
3. Hybrid holdings: A strategic balance between equity and debt designed to mitigate risk while optimising return potential.
4. Sectoral or thematic holdings: Funds focusing on one sector, such as banking or infrastructure, or a specific theme like consumption.
5. Index fund holdings: Track popular market indices. The fund holds all the stocks constituting the index in the exact proportion they are represented.

How mutual fund holdings function

It’s natural to wonder, “How do mutual fund holdings work in practice?” Here is a simple breakdown:

• Investment pool: Your money is combined with that of other investors, forming a corpus.
• Selection and management: A professional fund manager analyses market trends and decides which securities to buy or sell.
• Regulatory oversight: SEBI mandates funds to adhere to specific guidelines.
• NAV calculation: Each business day, the Net Asset Value (NAV) of a mutual fund is calculated based on the market prices of its holdings. The NAV determines how many units of the fund each investor owns.
• Disclosure: Funds are required to release detailed holdings periodically. Investors can use this information to evaluate performance and alignment with personal objectives.

Conclusion

Holdings, in the context of mutual funds, reflect the underlying assets that determine returns and risk profiles. By understanding what are holdings and how fund managers construct portfolios, individual investors can gain insight into how their money is being allocated.

For those new to mutual funds, remember that each scheme’s holdings will vary based on its investment strategy and fund type, and performance can be influenced by market conditions.

FAQs:

What is meant by holdings in SIP?

When you invest through a Systematic Investment Plan, each contribution purchases additional units of the chosen mutual fund. Your “holdings in SIP” thus refer to the accumulated units representing various assets within that mutual fund.

What does top 10 holdings mean?

“Top 10 holdings” highlights the largest positions in a mutual fund or portfolio, typically sorted by their share in total assets.

How do I get mutual fund holdings?

To review a mutual fund’s holdings, visit the fund house’s official website for its monthly or quarterly factsheet.

What does the number of holdings mean?

The “number of holdings” indicates how many distinct or different securities a mutual fund or investor owns.

What are examples of holdings?

An example of holdings could include a combination of shares in listed companies, corporate bonds, government securities, or gold-backed instruments.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.