75-5-10 Diversification

Definition - What does 75-5-10 Diversification mean?

75-5-10 Diversification is the diversification test which must be met by mutual funds under the investment company Act of 1940 in order to market themselves as a diversified mutual fund. 75% of the fund’s assets must be invested in other issuer’s securities, no more than 5% of the fund’s assets may be invested in any one company, and the fund may own no more than 10% of an issuer’s outstanding securities.

Testopedia explains 75-5-10 Diversification

An investment company is a portfolio of assets, and one of the primary reasons an investor buys is for diversification. In order for the investment company to be classified as diversified it must meet the 75-5-10 rule. In other words the funds assets must be invested, the can't simply be held in cash.

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