Mutual Fund Overlap: Meaning, Effects and How to Reduce It

In summary

Mutual fund overlap means that different schemes in your portfolio may hold some of the same securities. A few common holdings may be normal, but significant duplication can increase concentration risk.

• Overlap can occur across individual stocks, sectors, industries, or other exposures.
• Owning more funds does not automatically create better diversification.
• Check the underlying holdings of funds before adding another scheme.
• A mutual fund overlap checker can help identify common holdings.
• There is no universal overlap percentage that suits every investor.
• Review your portfolio periodically as fund holdings can change.

The Bajaj Broking website gives you access to mutual fund information that can help you compare schemes and understand their underlying investments before making an investment decision.

Mutual fund overlap occurs when two or more mutual funds in your portfolio hold the same securities or have similar underlying exposures.

For example, suppose you invest equally in two equity funds. If both funds allocate substantial amounts to the same five companies, your overall portfolio may be more concentrated than the number of funds suggests.

Overlap can occur at several levels:

• Individual stocks or securities.
• Sectors or industries.
• Market-cap segments.
• Investment styles.
• Geographic markets.

Overlap itself is not automatically a problem. Two diversified funds may naturally share some large companies.

The important question is whether the duplication creates more concentration than you intended.

Overlap can occur for several reasons. Funds may follow similar investment strategies, track similar benchmarks, focus on the same sectors, or invest in companies that fund managers independently consider attractive.

For example, two large-cap funds may both hold major banking companies because those companies form a significant part of the large-cap market. Similarly, sector-focused funds can naturally have considerable overlap if they invest in the same industry.

A fund manager's investment approach can also influence overlap. If two managers favour similar companies or sectors, their portfolios may end up holding many of the same securities. You can learn more about fund managers to understand their role in managing a mutual fund portfolio.

Overlap can occur at different levels of a portfolio.

Stock or security overlap

This occurs when two or more funds hold the same company or security. For example, Fund A and Fund B may both invest in the shares of the same company.

Sector overlap

Two funds may invest in different companies but have substantial exposure to the same sector, such as banking, information technology, or pharmaceuticals.

Industry overlap

Funds may invest in companies operating in the same broader industry. A portfolio can therefore have concentrated exposure even when the individual stocks are different.

Strategy or investment-style overlap

Two funds may follow similar investment approaches, such as focusing on companies with strong growth potential. Their holdings may therefore become similar even if their stated strategies are not identical.

Understanding portfolio diversification can help you see why simply holding several investments does not necessarily mean that your overall portfolio is well diversified.

You can identify overlap by comparing the holdings of the mutual funds you own or are considering.

Start by reviewing each fund's portfolio and noting its major holdings. A mutual fund portfolio can show you the securities and allocation that make up a scheme.

You can also review the fund fact sheets published by fund houses. These documents can provide information about a scheme's portfolio, investment objective, risk profile, and other characteristics.

A mutual fund overlap checker can make the comparison easier by identifying securities that appear in multiple funds.

A mutual fund overlap checker is a tool that compares the holdings of two or more mutual funds and identifies securities that appear across them.

For example, suppose you own Fund A and Fund B. The tool may show that both funds hold Company X, Company Y, and Company Z. This helps you see whether your investments have more common exposure than you expected.

The tool can make portfolio review easier, but you should still examine the funds' objectives, asset allocation, risk levels, costs, and other relevant information before making changes.

The main concern with substantial overlap is concentration risk. If several funds hold the same company and that company's value falls significantly, the decline can affect multiple parts of your portfolio at the same time.

Consider Neha, who invests Rs. 50,000 each in two equity funds. She assumes that owning two funds gives her broad diversification. However, if both funds have 20% of their portfolios invested in the same company, Rs. 20,000 of her combined Rs. 1 lakh investment is indirectly exposed to that one company.

If the company's share price falls sharply, both funds may be affected.

This does not mean Neha must avoid every fund with a common holding. She needs to understand whether the repeated exposure is appropriate for her overall portfolio.

Broad market movements can also affect several investments simultaneously. Understanding market volatility can help explain why diversification cannot eliminate all investment risk.

Reducing unnecessary overlap starts with understanding what your existing funds already own.

Review your fund holdings

Check the major securities, sectors, and asset classes held by each fund. This can reveal repeated exposure that may not be obvious from the fund names.

Avoid choosing funds only by category

Two funds from different categories can still have overlapping holdings. Consider the actual portfolio rather than relying only on the scheme category.

Consider your overall asset allocation

Look at how much of your portfolio is allocated to equity, debt, and other asset classes. Diversification is broader than simply owning several mutual funds.

Review your portfolio regularly

Fund holdings can change as managers buy and sell securities. Periodic reviews can help you identify new areas of concentration.

When selecting another scheme, choose different funds based on your goals, investment horizon, risk tolerance, and existing portfolio rather than adding a fund simply because it has performed well in the past.

Yes. Some overlap can occur naturally, particularly when funds invest in similar markets or follow related investment strategies. There is no universal percentage that can be treated as acceptable for every investor.

The more important question is whether the overlap creates an unwanted concentration in your portfolio.

For example, if two funds have a small common holding, the effect on your overall portfolio may be limited. If several funds have substantial exposure to the same company or sector, the concentration may deserve closer attention.

Your investment objective and overall asset allocation should therefore guide how you assess overlap.

Reducing unnecessary duplication can make it easier to understand what you own and where your money is exposed.

It may help you:

• Reduce unintended concentration in a particular company or sector.
• Understand the actual diversification of your portfolio.
• Avoid holding multiple funds that serve almost the same purpose.
• Make portfolio monitoring easier.
• Align your investments more closely with your financial goals.

However, reducing overlap should not mean removing every common holding. A decision should consider the fund's objective, portfolio, costs, risk, and role in your overall investment plan.

Overlap analysis is useful, but it has limitations.

Holdings can change

Mutual fund portfolios are not fixed. Fund managers can buy and sell securities, which can increase or reduce overlap over time.

Percentage overlap does not show everything

Two funds may have the same stock but different allocations to it. Looking only at whether a security is common may therefore miss the size of the actual exposure.

Overlap is not the only selection factor

A fund should not be selected or rejected solely because of overlap. Consider its investment objective, portfolio, risk level, costs, investment strategy, and suitability for your goals.

Overlap analysis can help you understand whether different schemes in your portfolio provide genuinely different exposure or repeatedly invest in the same securities.

On the Bajaj Broking website, you can research mutual fund schemes and review information relevant to your investment decisions. Complete your KYC and assess each scheme's investment objective, portfolio, costs, and SEBI Riskometer before investing.

The Riskometer categories are Low, Low to Moderate, Moderate, Moderately High, High, and Very High. The Riskometer indicates the scheme's risk level; it does not predict returns.

Mutual fund overlap occurs when different schemes have common investments. Some overlap may be natural, but substantial repeated exposure can reduce the diversification you expect and increase concentration risk. Reviewing fund holdings, comparing schemes, and periodically checking your portfolio can help you understand your actual exposure. Use overlap as one part of your analysis rather than as the sole basis for selecting or rejecting a mutual fund.

Last reviewed: September 2026

Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.