Question 1

What is concentration risk?

Accepted Answer

Concentration risk is the danger of holding too large a portion of your portfolio in a single stock, sector, or asset class. For tech employees in India, the biggest source is employer stock through RSUs, ESOPs, or direct shareholding. When one position dominates, a single bad event — a poor earnings report, a sector downturn, or a layoff — can severely damage your entire net worth.

Question 2

Why is employer stock particularly risky?

Accepted Answer

Employer stock creates correlated risk: your human capital (future salary, career prospects) is already tied to your employer, so adding investment capital to the same company means one bad event can reduce your salary, bonus, and portfolio value simultaneously. This is why many advisers recommend keeping employer stock below 10–20% of investable assets, regardless of conviction in the company.

Question 3

What is the diversification score?

Accepted Answer

The score (0–100) uses a modified version of the Herfindahl-Hirschman Index (HHI), a standard measure used by regulators and portfolio managers to quantify market concentration. A score above 70 indicates good diversification, 40–70 is moderate, and below 40 signals significant concentration. An additional penalty applies when employer stock exceeds 20%.

Question 4

Why does the 3-year projection assume no stock sales and no price changes?

Accepted Answer

This is a deliberate worst-case assumption showing how concentration evolves if no action is taken, since price appreciation or decline is not knowable in advance. The goal is to quantify the structural risk from vesting alone so a sell schedule can be planned ahead of time.

Question 5

Should I include my primary home in real estate?

Accepted Answer

No, the calculator explicitly excludes a primary residence, since it is a lifestyle asset that cannot easily be liquidated and generates no income. Investment real estate, such as a second property, REIT units, or commercial space, should be included as it represents investable wealth.

Question 6

How should I think about global diversification as a solution?

Accepted Answer

International diversification through LRS, UCITS funds, GIFT City funds, or direct equity helps reduce both single-stock risk and India-centric risk at the same time, which is useful for Indian tech employees concentrated in Indian or US tech company stock.

Question 7

What are my options for systematically reducing employer stock concentration?

Accepted Answer

Common strategies include selling a fixed percentage of each RSU tranche at vest, setting a target allocation and rebalancing annually, directing new income toward other asset classes instead of employer stock, and pre-planning sell decisions in writing before vesting dates. Tax considerations under Indian law, including perquisite tax at vest and LTCG/STCG on sale, should be factored in with a CA.

Concentration Risk Calculator

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