Investor Corner/Building and judging a portfolio/Evaluating Funds
3.3.2 Portfolio Overlap
Portfolio overlap happens when multiple funds hold many of the same underlying stocks. High overlap quietly reduces true diversification, even while a portfolio appears well spread across several different fund names.
Why overlap happens so easily
Large cap and flexi cap funds across different AMCs frequently gravitate toward a similar universe of the most well-known, heavily researched large companies. Two funds that look completely different by name, category, or AMC can still end up sharing a large proportion of their top holdings, simply because both managers are drawing conclusions from a broadly similar pool of attractive large companies.
Portfolio overlap measures the extent to which two or more funds hold the same underlying securities. If you own three equity funds and all three hold HDFC Bank, Reliance Industries and Infosys as top positions, you are not as diversified as you think. The three funds look different on paper (different names, different AMCs, perhaps different categories) but the underlying exposure is concentrated in the same stocks.
Overlap is most common among large-cap and flexi-cap funds because the investable universe of large, liquid Indian companies is limited. The top 20-30 stocks by market cap tend to appear in most large-cap portfolios because they dominate the benchmark and offer the deepest liquidity. Two large-cap funds from different AMCs can easily have 60-70% overlap in their top 20 holdings.
Why this matters for diversification and cost
If two funds share 70% of their portfolio by weight, holding both is functionally closer to holding one larger fund than to holding two genuinely different, diversifying strategies, while still paying two separate sets of expense ratios for that largely duplicated exposure. The intended diversification benefit of adding a second fund is significantly diminished by high overlap.
The practical consequence of high overlap is redundancy: you are paying two expense ratios for what is effectively one portfolio. If Fund A and Fund B have 70% overlap, holding both provides only 30% of additional diversification compared to holding just one. The money in the overlapping portion would be better deployed in a fund with genuinely different holdings: a mid-cap fund, a small-cap fund, a value fund or an international fund that holds none of the same stocks.
Checking your own portfolio
Comparing the top holdings lists across the funds you hold, particularly within similar categories, is a worthwhile exercise before adding yet another fund in the same space, since a genuinely diversifying addition should look meaningfully different from what is already held rather than largely duplicating it.
How PriLytics helps. PriLytics shows the true underlying composition of every fund you hold in one consolidated view, making overlap easy to spot rather than something buried across separate factsheets. See your true asset allocation.
Several online tools (Value Research, Morningstar India, Kuvera) allow you to check portfolio overlap between any two funds using their latest factsheet holdings. Before adding a new fund to your portfolio, checking its overlap with existing holdings takes two minutes and can prevent you from inadvertently concentrating rather than diversifying. A well-constructed portfolio of 3-4 equity funds should have low pairwise overlap, meaning each fund is adding genuinely new exposure that the others do not already provide.