You own four equity mutual funds. Four different fund houses, four different fund managers, four SIPs leaving your account each month. It feels diversified. Then you open the factsheets side by side and find that three of them hold the same ten large companies, in roughly the same order. You do not own four things. You own about one and a half.
Why it hides in plain sight
SEBI’s categorisation rules define what each fund may hold: a large-cap fund must keep at least 80% in the top 100 companies by market cap. That is good for honesty — the label means something — but it also forces every large-cap fund to shop from the same shelf. When thirty companies dominate that shelf, thirty companies dominate every fund on it.
Four people go to the same small kirana and each fills a bag. They come home with four bags and feel well stocked — until they empty them and find the same rice, dal, oil and atta in every bag. Four bags, one aisle’s worth of variety.
Four large-cap funds are four bags filled from the same aisle. The variety you feel from holding four is mostly the four names on the bags, not four different sets of contents.
How to check it before you buy
- 1Pull both factsheets
Every AMC publishes a month-end portfolio. Open the two schemes you are comparing and look at the top 15–20 holdings, which carry most of the weight.
- 2Add up the common names
For each stock both funds hold, take the smaller of the two weights and add those up. That sum is the overlap — the part of the two portfolios that moves as one.
- 3Read the number
Above roughly 50–60% overlap, the second fund is adding cost and paperwork more than diversification. Under about 30%, the two are genuinely doing different jobs.
You hold two large-cap funds that overlap 75%. What have you mainly achieved?
Aapke paas chaar large-cap fund hain, lagta hai badhiya diversified. Par factsheet kholo — teeno mein wahi das badi companies, same weight. Overlap matlab do fund ka wahi hissa jo same stock, same weight pe hai. Do large-cap 70-80% tak overlap kar sakte hain — matlab do expense ratio bhar ke ek hi portfolio mil raha. Asli diversification alag mandate se aati hai (large + mid + flexi), naam badalne se nahi. Naya fund lene se pehle top 15-20 holdings compare karo.
- Overlap is the share of two funds that is the same stocks at the same weights.
- Same-category funds overlap heavily because SEBI rules make them shop the same shelf.
- Check the top 15–20 holdings and add up the common names by the lower weight.
- Diversify across mandates — large, mid, flexi — not across scheme names.
- A fund that hugs its index while charging an active fee is a closet indexer.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- what is portfolio overlap in mutual funds
- Portfolio overlap is the percentage of two funds’ holdings that is the same stocks, weighted by how much each fund holds. If two large-cap funds share the same eight companies at similar weights, their overlap can run past 70% — which means holding both gives you far less diversification than the two fund names suggest. It is measured by adding up, stock by stock, the smaller of the two weights each fund assigns to that stock.
- how to check mutual fund overlap
- Compare the two funds’ latest monthly portfolio disclosures, which every AMC publishes, and add up the common holdings by the lower of their two weights. Several free tools do this automatically if you enter two scheme names, but the underlying data is the month-end factsheet each fund is required to publish. Focus on the top 15–20 holdings, since those carry most of the weight.
- is it bad to have two mutual funds with high overlap
- It is not dangerous, but it is pointless — you pay two expense ratios and do two sets of paperwork for what is effectively one portfolio. High overlap does not add risk the way a concentrated bet does; it simply fails to deliver the diversification you thought you were buying. The fix is to hold funds from genuinely different mandates — a large-cap, a mid- or small-cap, and perhaps a flexi-cap — rather than three funds fishing in the same pond.
- how many mutual funds should i hold
- For most investors three to five equity funds across distinct categories is plenty, and beyond about six the newest fund’s holdings almost entirely duplicate ones you already own. Adding funds feels like diversifying but usually just raises overlap and admin. What diversifies a portfolio is holding different mandates, not a longer list of scheme names.