{"id":3082,"date":"2024-02-01T06:03:12","date_gmt":"2024-02-01T06:03:12","guid":{"rendered":"https:\/\/1finance.co.in\/magazine\/?post_type=blog&p=3082"},"modified":"2024-06-18T11:13:55","modified_gmt":"2024-06-18T11:13:55","slug":"are-your-mutual-funds-portfolios-overlapping-heres-how-to-tell","status":"publish","type":"blog","link":"https:\/\/1finance.co.in\/1f-dashboard\/blog\/are-your-mutual-funds-portfolios-overlapping-heres-how-to-tell\/","title":{"rendered":"Are Your Mutual Funds Portfolios Overlapping? Here’s How to Tell"},"content":{"rendered":"

Building a well-diversified mutual fund portfolio is key to reducing risk and maximising returns. But many investors fall into the trap of over-diversifying by purchasing too many funds that end up overlapping. When multiple funds in your portfolio invest in the same securities, it can negate the benefits of diversification. So how do you know if your mutual funds are overlapping?<\/span>
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\n<\/span>In this blog, we’ll explain what overlapping funds are, why they can undermine your investment strategy, and how to identify overlapping securities in your mutual fund portfolios.<\/span>
\n<\/span>We’ll also discuss tools that can analyse your funds and the steps you can take to reduce redundancy.<\/span><\/p>\n

What Exactly Is Mutual Fund Overlap?<\/h2>\n

Overlap refers to when two or more of your mutual funds invest in the same stocks. For example, if Fund A and Fund B both have 5% invested in Tata stock, that’s considered a 5% overlap.<\/span>
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\n<\/span>This frequently happens because the top 100 stocks comprise about 60% of total equity assets under management in the mutual fund industry. Fund managers tend to flock to the same big name stocks.<\/span><\/p>\n

Why Does Overlap Matter?
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Too much overlap can undermine the purpose of diversification. If much of your portfolio is duplicating the same holdings, you lose out on the risk management benefit of spreading your money across a variety of assets.\u00a0<\/span><\/p>\n

Overlap can also cause you to overpay. If you’re doubling down on expensive funds that hold the same stocks, those redundant fees can eat into your returns.<\/span>
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\n<\/span>The main risk of mutual fund portfolio overlap is increased exposure to specific stocks, which can amplify portfolio volatility and potential losses.\u00a0<\/span>
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Here are some concerning facts about mutual funds overlapping:<\/h2>\n

High Concentration in Top Stocks: About 60% of the industry’s equity Assets Under Management (AUM) is invested in the top 100 stocks, leading to a high concentration risk.<\/span><\/p>\n

Overlap in Various Categories:<\/span><\/p>\n