Building a Long-Term Equity Portfolio

If individual shares have a place in the household, they should sit beside the mutual fund core, not on top of it. The aim of this article is a structure you can explain in a minute: the SIP continues, a small number of understood businesses may be held for years, position sizes stay modest, and the review is annual. Households that prefer to stop at mutual funds can treat this article as optional reading and move on to the next series.

The Core Remains the Fund

Retirement and other long-dated goals should continue to be funded by the diversified equity SIP described in Mutual Fund Mastery. EPF, PPF and NPS stay where they are. Individual shares do not replace those arrangements. They take only the surplus that remains after those contributions have left the account.

A workable ceiling for many beginners is to keep personal stock holdings to a minority of total equity — for example not more than a fifth to a quarter — until process and temperament have been tested across a full market cycle. The exact fraction is less important than the rule that the SIP is not reduced to feed the demat account.

How Many Names

Five to fifteen companies is a common range among individual investors who do the work themselves. Fewer than five concentrates risk. More than fifteen, for a person with a full-time job, usually means some names are not being followed. There is no prize for a longer list.

Each name should be a business you can describe: what it sells, who pays it, what could harm it, and why the current price is acceptable. If that paragraph cannot be written, the name is not ready.

Position Size

No single company should be large enough that a 50 per cent decline would change the household’s living standard or force a sale of the fund core. For a first portfolio, capping any one name at 3–5 per cent of total financial assets, or at a small slice of total equity, is more important than finding a precise formula. Adding to a name is allowed when the thesis still holds and the cap is not breached. It is not required merely because the price has fallen.

What to Review, and How Often

Once a year, and after each set of annual results for companies you hold, is enough. The questions are: does the business still do what I thought it did; has debt become uncomfortable; has the holding grown past the cap; has my need for cash changed? Selling because a quarter was noisy, or because another name is in the news, is the trading habit described in Article 2.

Rebalancing here usually means directing new surplus to the fund core if stocks have grown too large, rather than frequent switching among names.

Tax, Briefly

Listed equity shares follow the same broad capital-gains framework as equity-oriented funds for most delivery investors: short-term gains within 12 months at 20 per cent, long-term gains above the annual exemption at 12.5 per cent, for transfers under the post-July 2024 rules. Dividends are taxed at slab. Confirm the rule in the year of sale. Do not sell a long-term holding solely to “set off” a small loss unless a tax professional has run the numbers.