Portfolio Overlap Between Mutual Funds: How to Check It
Portfolio overlap is the share of two funds’ portfolios that sits in the same stocks at the same weights. The standard way to measure it is to take every stock both funds hold and add up the smaller of the two weights for each one.
High overlap means you are paying two expense ratios for one portfolio. Three large cap funds typically overlap 60% to 80% with each other, because SEBI rules force all of them to fish in the same pool of the top 100 listed companies.
Overlap is not automatically bad. It becomes a problem when you believe you are diversified and you are not.
How to Compute Overlap
The common holdings method works like this. List the stocks in Fund A with weights, do the same for Fund B, find the names present in both, and for each common name take the minimum of the two weights. Sum those minimums and that is your overlap percentage.
| Stock | Weight in Fund A | Weight in Fund B | Minimum |
|---|---|---|---|
| Large private bank | 9.0% | 7.5% | 7.5% |
| IT major | 6.0% | 8.0% | 6.0% |
| Energy conglomerate | 5.5% | 4.0% | 4.0% |
| FMCG major | 3.0% | 0.0% | 0.0% |
| Auto maker | 0.0% | 3.5% | 0.0% |
In this illustrative slice, the shared portion adds to 17.5%. Run it across all holdings and you get the full figure. Weights come from the monthly portfolio disclosure that every AMC publishes on its website and on the AMFI site.
A weaker shortcut
Some tools report overlap as the count of common stocks divided by total stocks. That ignores weights entirely, so two funds sharing 40 names could look identical even if one holds those names at 1% each and the other at 4% each. Prefer the weight based method.
Why Large Cap Funds Overlap So Heavily
SEBI’s categorisation rules define large cap as the top 100 companies by full market capitalisation, using the list AMFI publishes twice a year. A large cap fund must keep at least 80% of assets in those 100 names.
Two consequences follow. The universe is tiny, and it is concentrated: the biggest 10 companies account for a large slice of Nifty 100 market cap, so nearly every large cap fund holds most of them. Managers differentiate on the margin, by underweighting one bank and overweighting another, not by finding hidden stocks.
Mid cap funds draw from companies ranked 101 to 250 and small cap funds from 251 onwards, so those universes are wider and overlap tends to be lower, often 30% to 55%. Even there, popular names crowd in.
Index funds tracking the Nifty 50 will overlap 70% or more with most large cap funds by construction. That is worth knowing before you add an active large cap fund to an index fund and call it diversification.
What Overlap Percentage Actually Means
- Under 30%: genuinely different portfolios. Usually different market cap segments or very different styles.
- 30% to 50%: moderate. Acceptable between a flexi cap and a mid cap fund.
- 50% to 65%: getting redundant. Ask what the second fund adds.
- Above 65%: largely the same bet. You are paying two sets of fees for one exposure.
- Above 80%: effectively one fund split in two, with no diversification benefit at all.
Look at active share too, meaning how much of a fund differs from its benchmark. A large cap fund with 25% active share and a 0.9% expense ratio is an expensive index fund whichever way you measure it.
Check it over time, not once
Overlap moves as managers trade. A single month’s snapshot can mislead, especially for funds with high portfolio turnover. Look at three or four consecutive monthly disclosures before deciding a fund is redundant.
Frequently Asked Questions
Is high overlap between two funds always a reason to sell one?
Not always, but it is a reason to stop adding to both. Redeeming triggers capital gains and possibly an exit load, so the cheaper fix is usually to stop the SIP in the weaker fund and redirect fresh money. Consolidate gradually rather than in one taxable exit.
Does low overlap mean my portfolio is well diversified?
No. Two funds can hold different stocks and still be exposed to the same driver, such as domestic credit growth or a single sector theme. Check sector weights and market cap split alongside stock overlap.
Where do I get the holdings data to compute overlap myself?
Every AMC publishes complete monthly portfolios in downloadable form, and AMFI hosts scheme disclosures centrally. Debt portfolios are disclosed fortnightly. A spreadsheet with two columns of weights and a minimum formula does the rest.
How much overlap is normal between a flexi cap and a large cap fund?
Often 50% to 70%, because most flexi cap funds keep the majority of assets in large caps even though they are free to go anywhere. Read the actual market cap split in the factsheet instead of trusting the category name.
Do two funds from the same AMC always overlap more?
Frequently yes, since they share a research team and an internal approved stock list. It is not a rule, but if you own three schemes from one fund house in adjacent categories, checking overlap is worth the ten minutes.
Key Takeaways
- Overlap is the sum of the smaller weight for every stock two funds share.
- Large cap funds overlap heavily because SEBI limits them to the top 100 companies.
- Above roughly 65% overlap, a second fund adds cost rather than diversification.
- Weight based overlap beats a simple count of common stock names.
- Use monthly AMC and AMFI portfolio disclosures and check across a few months.
