An analyst has high conviction in a stock and wants the fund to hold 7% of NAV against an internal limit of 5%. The position would be Rs 350 crore in a stock that trades Rs 8 crore a day. What would make the investment committee comfortable, and what should it refuse?

The committee can get comfortable with the idea but should refuse the size. At 20% of volume the 7% position takes about 219 trading days to exit, and even the 5% limit takes 156, against a 60-day guideline that caps the stock near 1.9% of NAV. It would also take the fund house to about 10.2% of the company. Comfort comes from a written thesis, an independent review and pre-set exit triggers, not from an exception.

Two separate risks, and conviction speaks to only one of them. A shopkeeper can be right that a product will sell and still ruin himself by stocking a year's worth of it in a shop that sells a week's worth at a time. Conviction is a view on whether the stock goes up; the limit exists for the day the view is wrong and the fund needs to get out. The committee's job is to test the first and protect the second. Size is where they meet, and it is the one thing the analyst's enthusiasm cannot change.

Convert the position into days. At 20% of Rs 8 crore, the desk can sell Rs 1.6 crore a day. Rs 350 crore takes about 219 trading days, and the 5% limit, Rs 250 crore, still takes 156. The fund house's own 60-day guideline allows only Rs 96 crore, 1.92% of NAV. So the request is not a small stretch of a comfortable rule: the stock's liquidity says the current limit is already too large for it. And the exit would be slowest exactly when it is needed, because volume in a stock with bad news dries up and every other holder is selling too.

Ownership of the company. Rs 350 crore of a Rs 4,000 crore company is 8.75%. Add the 1.5% the fund house's other schemes hold and the house would own about 10.2% of Jalvahini, above the 10% ceiling that SEBI places on a fund house's combined holding in one company's voting shares; confirm the current rule and how it is measured. That line is regulatory, not internal, and no committee can waive it. Even below it, owning a tenth of a company's float makes the fund the market in that stock.

Comfort comes from evidence about the idea and controls around the position. Ask for a written thesis with a bear case and the specific facts that would make the analyst sell, an independent review by a second analyst, a staged build with a check-in at each step, and exit triggers agreed before the first purchase. A liquidity-adjusted size, here nearer 2% than 7%, lets the fund express the conviction without making the exit a year-long problem. Refuse three things: the breach of the limit itself, any temporary exception that is meant to be regularised later, and any argument that conviction is a reason to relax a risk rule. The rule exists for the case where the conviction turns out to be wrong.