This is what mutual fund overlap is, and it’s more common than you’d think. Thousands of Indian investors build what looks like a well-rounded portfolio, only to discover their “diversified” holdings are essentially the same basket of stocks in disguise.

In this article, we’ll break down what mutual fund overlap is, why it happens, how much it can actually cost you, and — most importantly — what you can do to fix it.

What Is Mutual Fund Overlap?

Mutual fund overlap happens when two or more funds in your portfolio invest in the same underlying stocks or securities. It’s not about the fund names — it’s about what’s actually inside them.

Think of it this way: you buy an ICICI Prudential Bluechip Fund and an SBI Bluechip Fund, believing you’ve spread your money across two different pools. But research by Dezerv shows these two funds share around 47% of their stocks — including Reliance Industries, HDFC Bank, ICICI Bank, Infosys, and Larsen & Toubro as the biggest common holdings.

In short, nearly half your investment is working in the exact same direction in both funds.

Why Does Mutual Fund Overlap Happen?

The most common reason is that Indian investors tend to pick funds from popular review sites or star ratings — and those lists often feature similar large-cap or bluechip-focused funds.

Here are the most frequent causes:

1. Same Fund Category

Large-cap funds in India can only invest in the top 100 companies by market cap. There are roughly the same 100 stocks available to every large-cap fund manager. So naturally, two well-run large-cap funds will end up owning many of the same companies.

2. Following Star Ratings Blindly

Platforms like CRISIL, Morningstar, or Value Research rate funds on performance metrics. The top-rated funds often hold the same market leaders — which means chasing 5-star funds in the same category creates unavoidable duplication.

3. ELSS + Equity Fund Combination

Many investors hold both an ELSS (tax-saving) fund and a regular equity fund. Since ELSS funds also invest primarily in equities — often large-caps — the overlap with a large-cap or flexi-cap fund can be substantial, sometimes exceeding 40–50%.

4. Too Many Funds, Not Enough Variety

Having 8 to 12 funds doesn’t automatically mean better diversification. A real-world portfolio studied by investtt.in showed an investor who held 15 funds from 2019 to 2024, earned 121% returns — but the Nifty 500 index delivered 140% in the same period with no effort. More funds, with high overlap, actually underperformed a simple index.

Real-World Example of Mutual Fund Overlap in India

Let’s say Priya, a 32-year-old software professional from Pune, invests ₹15,000 per month split across three funds:

• ₹5,000 in HDFC Top 100 Fund (Large Cap)
• ₹5,000 in Mirae Asset Large Cap Fund (Large Cap)
• ₹5,000 in Axis Long Term Equity Fund (ELSS)

At first glance, this looks diversified — three different fund houses, three different fund names. But when you run an overlap analysis, HDFC Top 100 and Mirae Asset Large Cap can share 55–65% of their top holdings. The ELSS fund adds another 35–40% overlap with both.

What Priya thinks is three separate streams of growth is, in reality, one very concentrated bet on Indian blue-chip companies — specifically on HDFC Bank, Reliance, Infosys, and a handful of others — repeated three times over.

How Much Does Mutual Fund Overlap Actually Cost You?

The financial damage from mutual fund overlap comes in three distinct forms. None of them are immediately visible — which is what makes them so dangerous.

1. Amplified Losses When a Sector Falls

When a widely held stock like HDFC Bank or Reliance Industries corrects sharply, a portfolio with high overlap gets hit much harder than it should. If all three of your funds are holding 7–9% in the same stock, a 20% fall in that stock doesn’t just affect one fund — it pulls down all three simultaneously.

2. Double Expense Ratios for No Extra Value

Each mutual fund charges an expense ratio — typically 0.5% to 1.5% per year on your invested amount. If two funds are essentially doing the same thing, you’re paying two expense ratios for one job. On a ₹10 lakh portfolio, that could mean an unnecessary additional cost of ₹5,000–₹10,000 per year — money that compounds away from your returns.

3. Missed Opportunities in Other Market Segments

While your money is concentrated in the same large-cap stocks, you’re missing out on growth potential in mid-caps, small-caps, international funds, debt instruments, or sector-specific plays. Over a 10–15 year horizon, this opportunity cost can be significant.

What Level of Overlap Is Acceptable?

According to PrimeInvestor, an overlap of 80% or more between two funds virtually eliminates the diversification benefit. At this level, you’re essentially paying two managers to run one portfolio.

How to Check Mutual Fund Overlap in India

The good news is that checking your portfolio for overlap is free and fairly easy. Several Indian platforms offer this as a dedicated tool:

• PrimeInvestor.in — Offers a detailed mutual fund overlap tool for 2–3 equity funds, showing common stocks and their portfolio weights
• 1Finance.co.in — Portfolio review calculator that computes overlap, top 5 common stocks, and weighted averages
• Dezerv.in — Visual portfolio overlap checker with diversification insights
• AdvisorKhoj.com — One of the oldest mutual fund research platforms in India, with portfolio overlap analysis tools
• TheFundoo.com — Lets you compare holdings across schemes and see percentage of portfolio in common stocks

Most of these tools are free to use. All you need are the fund names. Run a comparison before adding any new fund to your portfolio — it takes less than two minutes and could save you years of sub-optimal returns.

How to Fix Mutual Fund Overlap in Your Portfolio

Reducing overlap doesn’t mean you have to upend everything. It’s about being intentional with each fund you add.

Step 1: Audit Your Current Portfolio

List all your funds and use any of the overlap tools above to identify which pairs have the highest overlap. Even just knowing the number gives you a starting point.

Step 2: Diversify Across Market Caps

The most effective way to reduce overlap is to diversify across market cap segments. A portfolio of one large-cap fund, one mid-cap fund, and one small-cap fund will have far less overlap than three large-cap funds.

Step 3: Consider Adding Index Funds

A Nifty 50 or Nifty 500 index fund gives you broad market exposure at very low cost (expense ratio often below 0.1%). This can replace multiple overlapping active funds and actually improve diversification.

Step 4: Limit Total Number of Funds

For most investors, 4–6 well-chosen funds across different categories are more than sufficient. Having 10–15 funds creates an illusion of diversification while increasing overlap, paperwork, and costs.

Step 5: Review Quarterly

Fund portfolios change. A fund that had low overlap 12 months ago may now have shifted its strategy and increased its overlap with your other holdings. A quarterly review keeps you ahead of this drift.

When Overlap Might Be Acceptable

Not all overlap is automatically bad. There are situations where some degree of commonality is unavoidable and even acceptable:

If you’re in the wealth accumulation phase and holding large-cap funds alongside a flexi-cap fund, some overlap in Nifty 50 stocks is natural. What matters more in these cases is whether the funds perform differently — different weights to the common stocks, and different unique stocks outside the overlap, can still produce meaningfully different returns.

Overlap becomes a serious problem primarily when two funds have nearly identical portfolios and one of them is underperforming. In that case, the weak fund is dragging down your overall returns without offering any distinct benefit.

⚠️ When NOT to Rely on Google Search — Talk to a Financial Expert

Key Takeaways

• Mutual fund overlap happens when two or more funds in your portfolio hold the same stocks — giving you false diversification
• Up to 47% overlap exists between popular large-cap funds like ICICI Prudential Bluechip and SBI Bluechip
• High overlap amplifies your losses when shared stocks fall, and wastes money on duplicate expense ratios
• An overlap of 50% or more is a red flag. Above 80%, you need to consolidate immediately
• Use free tools from PrimeInvestor, 1Finance, or Dezerv to check overlap before adding any new fund
• The ideal portfolio has 4–6 funds across different market cap segments and categories — not 10–15 funds in the same category
• When in doubt or when stakes are high, consult a SEBI-registered Investment Advisor