Mutual fund overlap refers to a situation where two or more mutual funds in your portfolio hold the same stocks or securities. This duplication can happen across funds of the same category (like two large-cap funds) or even across different categories if the fund managers invest in similar companies.
While some overlap is expected, excessive overlap can lead to a concentrated portfolio, reduce diversification, and increase your risk exposure.
In this blog, weтАЩll break down the causes of mutual fund overlap, the risks it brings, how to identify it using portfolio overlap mutual fund tools, and practical strategies to reduce it.
Causes of Mutual Fund Overlap
Mutual fund overlap often happens when multiple funds in your portfolio hold the same securities. While some level of overlap is expected, too much of it can defeat the purpose of diversification. Here are the main causes of mutual fund portfolio overlap:
Investing in Funds with Similar Strategies
One of the most common causes of mutual fund overlap is investing in funds that follow similar strategies or benchmarks. For instance, two large-cap fundsтАФeven from different AMCsтАФare likely to hold the same top-performing stocks, such as Reliance or HDFC Bank. This results in duplication, even if the funds appear different on the surface.
Repetitive Sector or Stock Exposure
If multiple funds in your portfolio heavily invest in the same sectors, like IT, pharma, or banking, you may face concentrated exposure to a specific industry. Similarly, popular stocks like Infosys or TCS might appear in several portfolios, leading to portfolio overlap and mutual fund risk during sector downturns.
Lack of Diversification in Fund Selection
Many investors unknowingly pick funds based on past returns or AMC reputation, without evaluating underlying holdings. This lack of due diligence might lead to selecting multiple funds with similar top holdings, creating an unbalanced portfolio with high mutual fund overlap.
How to Check Mutual Fund Overlap
Checking for mutual fund portfolio overlap is an important step before investing in multiple funds. It helps you avoid duplication and build a more balanced portfolio. Here’s how to check mutual fund overlap effectively:
Tools and Methods for Mutual Fund Overlap Check
You can check mutual fund overlap using online tools that compare the holdings of two or more schemes. These tools typically display the percentage of overlapping stocks, their weightage, and common sector allocations. Some platforms also let you upload your portfolio to analyse overlaps automatically.
How to Interpret Portfolio Overlap Reports
When reviewing a mutual fund overlap report, pay attention to:
- Total Overlap (%): Anything above 50тАУ60% suggests high duplication.
- Top Common Holdings: Repeated stocks with high weightage increase concentration risk.
- Overlap by Sector: High exposure to the same industry across funds may reduce diversification.
Understanding these factors might help you assess whether to retain, rebalance, or replace certain funds.
Popular Platforms for Checking Portfolio Overlap in Mutual Funds
Several tools allow you to compare schemes across AMCs and categories, helping you avoid hidden duplication in your portfolio. Some platforms that offer free and reliable mutual fund overlap check features are:
- Morningstar India
- Value Research
- ET Money
- Groww and Kuvera
Risks Associated with Mutual Fund Overlap
Mutual fund portfolio overlap can quietly undermine your investment strategy. While it might seem harmless, repeated exposure to the same stocks or sectors can increase your overall risk and reduce your portfolioтАЩs efficiency. Here are the key risks associated with mutual fund overlap:
Concentration Risk
When the same stocks appear across multiple funds, your portfolio becomes overly dependent on the performance of those few holdings. This concentration risk means that if these stocks underperform, your entire portfolio takes a hit, regardless of how many different funds youтАЩve invested in.
Reduced Diversification Benefits
Diversification aims to spread risk across different sectors, asset classes, and strategies. High mutual fund overlap defeats this purpose by loading your portfolio with similar exposures. Even if you own several funds, you may not be truly diversified if their holdings are too similar.
Potential Impact on Returns
Mutual fund overlap can also affect long-term returns. If the overlapping stocks or sectors underperform, you may see lower overall gains despite holding multiple funds. Additionally, excessive overlap may cause you to miss out on growth opportunities in different sectors or asset classes not covered by your current funds.
Strategies to Reduce Mutual Fund Overlap
Reducing mutual fund portfolio overlap is key to maintaining true diversification and lowering risk. ItтАЩs not just about choosing different funds тАФ itтАЩs about choosing the right mix that works together strategically. Here are effective, tactical ways to reduce mutual fund overlap and build a more resilient portfolio:
Choose Funds with Complementary Portfolios
To avoid mutual fund overlap, select schemes that complement each other in investment style, sector allocation, and underlying holdings. For example:
- Pair a large-cap index fund with an actively managed mid-cap or flexi-cap fund.
- Use fund fact sheets or mutual fund overlap check tools to analyse the top 10 holdings and ensure they donтАЩt repeat significantly across schemes.
This approach ensures that even within equity, your exposure is spread across different market segments and strategies.
Diversify Across Fund Categories and Asset Classes
Portfolio overlap mutual fund risk reduces significantly when you diversify not only across fund categories (like large-cap, mid-cap, thematic) but also across asset classes (equity, debt, international funds, REITs). Some more benefits are:
- Combining debt funds or global funds with domestic equity funds creates better diversification.
- Even within equity, mixing growth-focused and value-oriented funds can help reduce overlap at the stock level.
However, donтАЩt rely on just AMC brand names. Focus on investment philosophy and portfolio structure instead.
Monitor Fund Holdings Periodically
Mutual fund portfolios change over time, especially in actively managed funds. A fund you selected for low overlap may start overlapping more due to strategy drift or market movements. Some ways to tackle this are:
- Conduct a mutual fund overlap check at least once every 3тАУ6 months.
- Pay attention to changes in top holdings, sector allocations, and style biases in regular fact sheet reviews.
- Use overlap insights as a signal to rebalance your portfolio or replace high-overlap schemes.
Final Thoughts on Managing Mutual Fund Overlap
Regularly checking for mutual fund overlap is essential to maintaining a well-diversified portfolio. Fund holdings change over time, so periodic reviews help you avoid unwanted duplication and keep your risk in check. If you’re unsure how to interpret overlap reports or pick complementary funds, consider consulting a financial advisor.
Ultimately, a balanced approach, with strategic diversification across categories and asset classes, gives you a better shot at long-term wealth creation. Additionally, apps like Appreciate simplify this process with smart tools, AI-driven insights, and low-cost access to global investments. Download the app now!
FAQs
What is considered a high portfolio overlap in mutual funds?
A high portfolio overlap in mutual funds is generally 60% or more. This means that over half of the securities in two mutual funds are the same. Such a mutual fund overlap can reduce diversification benefits and increase your portfolio’s overall risk.
How can I use a mutual fund overlap check tool effectively?
You can use a mutual fund overlap check tool effectively by comparing two or more schemes before investing. Focus on metrics like common holdings, weight overlap, and sector exposure. This helps identify portfolio overlap mutual fund scenarios and avoid duplication in your investment strategy.
Is mutual fund portfolio overlap always a bad thing?
Mutual fund portfolio overlap is not always a bad thing. A small degree of overlap is natural, especially in index or large-cap funds. However, excessive overlap reduces diversification and increases your risk exposure to specific stocks or sectors.
How often should I check for portfolio overlap in my investments?
You should check for portfolio overlap in your investments at least once every quarter, or when adding a new fund to your portfolio. Market changes and fund strategy shifts can increase overlap, so a regular mutual fund overlap check is important for balanced diversification.
Can two funds from different AMCs have a portfolio overlap?
Yes, two funds from different AMCs (Asset Management Companies) can have a portfolio overlap. This is common when funds follow similar investment mandates or benchmark indices. Even actively managed funds from different AMCs may invest in the same popular stocks.
Disclaimer
The information provided in this article is for educational and informational purposes only. It should not be considered as financial or investment advice. Investing in stocks involves risk, and it is important to conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses or gains that may result from the use of this information.
