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Hidden Mutual Fund Overlap Raising Concerns Among Investors
Financial experts are urging retail investors to review their mutual fund portfolios more carefully as hidden overlap between schemes continues to emerge as a growing concern. Many investors believe that owning several mutual funds automatically provides diversification, but portfolio analysis often reveals that multiple schemes are investing in the same stocks.
According to market analysts, this issue is particularly common in large-cap equity funds. Since SEBI guidelines require large-cap schemes to allocate at least 80% of their investments to the top 100 listed companies, different funds frequently end up holding similar portfolios.
Investment advisors say many individuals select funds based on strong past performance, ratings, or market popularity without examining the underlying holdings. As a result, investors may unknowingly duplicate exposure across several schemes while assuming their investments are spread across different opportunities.
A recent portfolio review demonstrated how significant the issue can become. An investor who had invested in three different large-cap mutual funds over several years discovered that the schemes shared overlap levels exceeding 60%. Despite being managed by separate AMCs, the funds carried nearly identical exposure to leading companies including HDFC Bank, ICICI Bank, Reliance Industries, Larsen & Toubro, and State Bank of India.
Experts warn that such concentration can weaken the benefits of diversification. If a heavily represented sector such as banking or financial services experiences a downturn, investors holding overlapping funds may see multiple schemes decline at the same time.
Analysts also point out that excessive overlap may increase investment costs without offering additional portfolio advantages. Investors often pay separate fund management expenses for schemes that follow nearly identical investment strategies.
To improve transparency, SEBI has introduced new disclosure measures that will come into effect from August 2026. Under the revised guidelines, fund houses will publish monthly overlap reports to help investors identify similarities between schemes more easily.
Financial planners recommend that investors regularly analyse their portfolios before adding new mutual funds. Experts suggest focusing on true diversification across sectors, asset classes, and market capitalisations rather than simply increasing the number of schemes in a portfolio.
At Veedhi, financial professionals believe that monitoring mutual fund overlap is becoming increasingly important for long-term wealth creation. By understanding what their portfolios actually contain, investors can make more informed decisions, reduce concentration risk, and build stronger investment strategies for the future.
