Mutual Fund Overlap: How to Check If Your Funds Are Duplicating the Same Stocks

Key Takeaways

1. Mutual fund overlap means two or more funds in your portfolio hold a large number of common stocks, reducing the actual diversification in your portfolio. .
2. High overlap increases concentration risk and can mean you're paying two expense ratios for near-identical stock exposure.
3. You can check overlap directly through your trading application by comparing each fund's top holdings.
4. Overlap can happen even across different fund categories, so check by actual stock and sector, not just fund labels.
5. Review overlap periodically, since fund holdings change, and a fund that looked diversified last year may not be today.

You've spread your money across four or five mutual funds, thinking you've built a diversified portfolio. But have you actually checked what's inside each one?

A lot of investors open their trading application, see different fund names on the screen, and assume that's diversification. It often isn't. Two funds with completely different names can hold the same set of stocks in nearly the same proportions, and that's exactly what mutual fund overlap means.

This blog explains what overlap is, why it quietly works against you, and how to check it using the same trading application you already use to invest.

What Is Mutual Fund Overlap?

Mutual fund overlap happens when two or more funds in your portfolio hold a significant number of common stocks. Say you own a large-cap fund and a flexi-cap fund from two different fund houses. If the top holdings of both funds have a 60% overlap across the same ten companies , you're not really diversifying; you're duplicating exposure and paying two sets of expense ratios for it.

This isn't rare. Many funds in the same category (large-cap, for instance) end up buying similar stocks, because they're drawing from the same universe of established, liquid companies. So overlap can creep in even when you didn't pick two "similar-sounding" funds on purpose.

Why Overlap Matters More Than It Looks

Overlap doesn't just make your portfolio less diverse on paper. It has three real effects:

Concentration risk goes up. If five of your funds are all overweight in the same three or four stocks, a sharp fall in those specific companies hits your entire portfolio at once, not just one fund.

You pay more, get less. Each fund charges its own expense ratio. When two funds are holding nearly identical stocks, you're paying the expenses of two funds for what may be similar underlying exposure. .

Your risk profile gets skewed without you noticing. You might think you've balanced growth and stability across funds, when in reality, the underlying stock exposure tells a different story.

How to Check Mutual Fund Overlap Using a Trading Application

Here's where a trading application actually earns its keep beyond just buying and selling. Most platforms today let you go past the fund name and see what's inside.

1. Open the portfolio holdings view. Inside your trading application, go to the mutual fund section and open each fund's factsheet or "top holdings" tab. This shows you the stock names and their percentage weight in that fund.

2. List out the top 10-15 holdings of each fund. Do this for every equity fund you hold. If you're using an online trading app, most of them display this without needing to download a separate PDF.

3. Compare stock names across funds. Manually check for duplicate firms and see what percent they make up in your portfolio as a whole. If you see one individual stock showing up at 6-8% in three of your mutual funds, then that indicates overlapping exposure rather than diversification. .

4. Use a portfolio overlap tool if your platform offers one. Some trading platforms and mutual fund websites allow you to input two fund names and receive a percentage overlap automatically.If a tool reveals an overlap of 40% or higher between two mutual funds, it is worthwhile to ask yourself whether you really need both. 

5. Check category, not just fund name. Funds across categories may include large-cap funds, flexi-cap funds, or even ELSS, but the overlap between these types of funds may still remain significant if the investment manager favours the same blue-chip stocks. 

If you're new to reading fund factsheets, this guide on understanding demat and portfolio statements is a useful place to start before you dig into overlap comparisons.

Common Mistakes Investors Make With Overlap

Assuming more funds means more diversification. Adding a sixth or seventh fund doesn't automatically spread risk; if it's holding the same top stocks as fund number two, you've added cost without adding protection.

Ignoring sector overlap. Even when stock names differ slightly, funds can still be overweight in the same sector, say, banking or IT. That's a different kind of overlap worth watching too.

Checking overlap only once. Fund managers change holdings over time. What looked diversified a year ago on your online trading app might look completely different today. A once-a-year check is a reasonable habit.

Reacting too fast. Finding 30% overlap doesn't mean you should sell a fund immediately. Look at the fund's overall strategy, track record, and your own goals before making a change.

How mastertrust Helps You Track Fund Overlap

mastertrust allows you to see all your mutual fund investments along with your equities and F&O portfolios in one place, so that you do not have to switch applications in order to see what you really hold. 

Through the mastertrust online trading application, you will be able to see the largest holdings of each of the mutual funds and know the extent of their overlap over a period of time. 

If you are holding many different funds across various fund houses, then checking for overlap becomes much easier for you to do within a few minutes.

Final Thoughts

It is not how many mutual funds you have; it is how different they are that counts in diversification. This is because mutual fund overlap may easily be overlooked due to its being obscured by the different name that each mutual fund has. 

getting into the habit of checking mutual fund overlap through your online trading application at least once or twice a year, you can avoid redundancy.

Frequently Asked Questions (FAQs)

1. What is a healthy level of mutual fund overlap?

Although there is no definite percentage for determining overlap, an overlap exceeding 40-50 percent between two funds may be considered a red flag.

2. Can I check fund overlap without downloading extra apps?

Yes. Almost all platforms, even an effective online trading application, offer you to see the best-performing shares in the mutual fund category.

3. Does overlap apply only to equity funds?

Mostly yes. Debt funds and equity funds don't overlap in the same way, since debt funds don't hold company stocks the way equity funds do.

4. Should I sell a fund if I find high overlap?

Maybe not. Take into account the fund's past performance and your investment objectives.  There may be times when you simply cut down on the number of your funds.

5. How often should I check for overlap?

Once or twice a year is reasonable, especially after you add a new fund or a fund manager changes strategy.

6. Do all trading applications show fund holdings for free?

Most do, since holdings disclosures are a regulatory requirement for mutual funds. You shouldn't need to pay extra to view them on your trading application.

mastertrust charges Rs. 20/- per order for Stocks, F&O and Commodities. mastertrust provides zero account opening with first year free demat AMC, with the option to get lifetime free demat AMC by paying a nominal one-time fee.