Mutual funds are one of the potent avenues for wealth creation. The historical returns generated by them — across various categories and subcategories — have encouraged households to deploy their hard-earned savings in this market-linked avenue, at a time when some traditional investment avenues aren't offering compelling real returns. The inflows into mutual funds and the rise in individual folios stand as testimony to that.
A plethora of options exist today for investing in mutual funds, depending on one's risk profile, investment objectives, financial goals, and the time available to achieve them.
However, the data also shows that individual retail investors are increasingly overcrowding and over-diversifying their mutual fund portfolios. Investors are giving in to the FOMO (fear of missing out) and buying too many mutual funds — thanks to new fund offers, recency bias (chasing hot trends and returns), and a variety within each category of fund.
It is important to note that while diversification is the fundamental tenet of investing, over-diversification results in diworsification. Simply put, it impedes the very benefits of diversification (i.e., reducing risk and optimising returns) and often leads to high portfolio overlap.
What Is Portfolio Overlap?
It refers to a situation where there is duplication of securities in a mutual fund scheme's portfolio.
A portfolio overlap is not just limited to the names of securities but also in terms of their weight in the scheme's portfolio and sector composition.
In the case of large-cap funds, given their mandate to invest predominantly in the top 100 stocks (on a full market capitalisation), they inherently have high portfolio overlaps, often sharing greater than or equal to 50% of their holdings.
For instance, in ICICI Prudential Large Cap Fund (which currently has 84 stocks, as per May 2026 portfolio) and Mirae Asset Large Cap (which currently has 82 stocks), the mutual fund overlap is nearly 60%. There are a total of 41 stocks in common, such as ABB India, Axis Bank, Asian Paints and more.
Even with mid-cap funds, given that they invest in companies ranked 101st to 250th on a full market capitalisation basis, the portfolio overlap across certain funds can be in the range of 30-50%.
For instance, the HDFC Mid Cap Fund (which currently holds 79 stocks, as per the May 2026 portfolio) and the Nippon India Growth Mid Cap Fund (which has 99 stocks) have a portfolio overlap of slightly over 30%. There are 32 stocks common in these funds, such as Max Financial Services, Federal Bank, AU Small Finance Bank and more.
You see, care needs to be taken to ensure that you do own schemes with a high portfolio. Otherwise, it can pose a high concentration risk and polarise the portfolio's potential returns. Meaning, the scheme's performance will hinge on a few stock and sector sets. It may not help achieve the intended objective of diversification.
As an investor, you need to be conscious of portfolio overlap right from the start when considering adding schemes to the portfolio. If this is ignored, it may not add much value to the portfolio, and you are ultimately paying an expense ratio for funds with similar portfolio holdings. This later adds to the complexity of reviewing and rebalancing your personal mutual fund portfolio.
So, now comes the question: How to check mutual fund overlap?
In this age of AI and digitisation, there exist a variety of free online tools or websites, such as advisorkhoj, primeinvestor, dezerv, and many others, that allow you to check mutual fund overlap. While each of these may have a different user interface (UI), they are intuitive and rather simple to use.
All you have to do is select the category and sub-category, then enter the scheme names to compare, and check.
At the click of the 'submit' or 'find overlap' button, these mutual fund overlap tools give you a perspective of:
- How much overlap is there between the schemes
- The percentage of holdings common to one fund compared with another
- The number of stocks in common
- The names of those stocks (along with weights in the respective fund),
- The uncommon stocks in those funds
This perspective enables you, the investor, to choose schemes wisely to avoid portfolio overlap.
That said, when using the portfolio overlap online tool, for a sensible comparison, ideally, compare funds from the respective category and sub-category. Avoid comparing apples with oranges.
Keep in mind, a certain degree of portfolio overlap is unavoidable and, therefore, acceptable. But if it is remarkably high, at 50-60% or more, it can pose a high concentration risk.
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How to Optimise Mutual Fund Portfolio to Avoid Overlap?
First, avoid holding too many mutual fund schemes and overcrowding the portfolio, as this can be burdensome to manage.
Consider adding schemes that are unique in their investment mandates and align with your needs, risk profile, and financial goals, which can genuinely add value to your personal investment portfolio, rather than making ad hoc decisions.
Don't add schemes just because you're listening to finfluencers or go by what your friends, relatives, colleagues, neighbours, etc. do with their investments. Remember the adage, one man's meat is another man's poison. Investing is, essentially, an individualistic exercise.
"When it comes to investing, there is no such thing as a one-size-fits-all portfolio" - Barry Ritholtz (an American author, newspaper columnist, and equity analyst).
If your personal mutual fund portfolio already has many schemes with a high portfolio overlap, here's what you need to do:
- Cut down on the number of schemes to a maximum of 10 that are among the best and most suitable ones across categories and subcategories. Remove the ones that have consistently underperformed their category average returns and the benchmark index over the long term, plus those which are not in line with your risk profile, investment objective, and time horizon.
- Hold not more than 1-2 from the respective category and subcategory, and ensure they follow distinct investment strategies.
- Keep the fund house concentration risk in check. Meaning: avoid too many schemes from the same mutual fund house and fund manager, as they are likely to follow similar investment styles/strategies across schemes, which can lead to high portfolio overlap.
- Avoid adding new fund offers (NFOs) unless the scheme offers a unique proposition.
Be mindful that mutual fund portfolio overlap is a dynamic concept, meaning it will change as the fund manager makes changes to the scheme's underlying portfolio. Thus, when you own mutual funds, it becomes necessary to review the portfolio regularly - say biannually.
Checking a fund's portfolio overlap with another and reviewing your personal mutual fund portfolio can help in portfolio rebalancing, ensure the asset allocation is set to the most suitable level, potentially improve the risk-adjusted returns of your portfolio, build wealth, and ensure liquidity.
If you aren't savvy about reviewing and rebalancing your portfolio to ensure that the portfolio overlap is optimal, do not hesitate to seek the services of a SEBI-registered investment adviser.
Invest sensibly, be a thoughtful investor.
Happy investing!
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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