When investing a ₹10,000 bonus into an existing portfolio of 5 mutual funds, experts recommend focusing on asset allocation rather than fund count. According to Mint reports, Aditya Agarwal, Co-founder of Wealthy.in, emphasizes that "The right question is not 'how should I split this?' but 'which part of my portfolio is short of its target?'" Manish P. Hingar, Founder and CEO of Fintoo, warns against spreading the bonus across all five funds, stating "₹2,000 each makes very little difference. Look at your overall portfolio mix instead." The key principle is to address portfolio gaps rather than simply distributing funds equally across existing holdings.
Investors often assume that holding several mutual funds automatically creates diversification, but this isn't always the case. According to Mint reports, portfolio overlap between mutual funds is not necessarily a problem, particularly when schemes have different strategies, risk profiles or portfolio roles. However, Debasish Mohanty, MD & Chief Strategy Officer at The Wealth Company Mutual Fund, warns that excessive overlap can leave investors with concentrated exposure despite holding multiple funds. The issue lies not merely in the presence of common stocks but the extent to which those common exposures influence the overall portfolio. As Mohanty explains, "Some overlap between mutual funds is neither unusual nor necessarily a problem. In fact, it is quite natural when funds operate in similar market segments or draw from the same investment universe." However, overlap becomes a concern when multiple schemes provide substantially similar exposure without adding meaningful diversification.
While there's no universal percentage at which portfolio overlap automatically becomes a warning sign, Mint reports suggest a more specific reference point of limiting overlap to 40%. Jiral Mehta, Senior Manager - Research at FundsIndia, recommends this limit, though he emphasizes it should be viewed as a suggested guideline rather than an industry threshold. The critical factor isn't just the number of common holdings but their weights and concentration across different investment categories. Mohanty notes that "An overlap figure should be viewed in the context of the categories involved, the investment universe available to the fund managers and the weight of each scheme in the investor's overall portfolio." The same headline overlap percentage can have very different implications for different portfolios, making context crucial for assessment.
According to Mint analysis, overlap is more likely when funds operate within similar investment universes. Large-cap, flexi-cap and large-and-mid-cap funds can have meaningful common exposure to large companies despite different mandates. Similarly, sectoral and thematic funds can overlap when their underlying themes intersect, while actively managed funds and index funds can own many of the same large stocks. Mohanty warns against selecting multiple funds simply because they've recently performed well, as this approach can leave investors concentrated in one or two investment styles. As he explains, "Equity funds go through cycles. Different investment styles, market cap segments, sectors and geographies perform well at different times."
As reported by Mint, high overlap does not necessarily mean two funds are identical. Two schemes may own several common companies but hold them in substantially different proportions. Their remaining portfolios, sector allocations, market-cap exposure, investment styles, turnover and risk characteristics may differ significantly. Mohanty emphasizes that "Even relatively high overlap does not necessarily mean that two funds are identical or serve exactly the same purpose." The key consideration is what each scheme contributes to the investor's overall portfolio - different strategies or risk profiles can make some degree of overlap reasonable, but investors should not ignore the effect of common holdings. Mehta recommends using online mutual fund overlap tools to identify common holdings between schemes.
According to Mint experts, portfolio overlap is a portfolio-construction issue rather than a standalone number. Investors should look at their mutual funds collectively and ask what stocks, sectors, market-cap segments and investment styles they're actually exposed to after combining all schemes. This consolidated view can reveal concentration that may not be apparent when each mutual fund is assessed separately. The focus should be on creating diversification across investment styles so the overall portfolio can potentially deliver more consistent performance with lower volatility. As Mohanty concludes, "Portfolio overlap is a portfolio-construction issue rather than a standalone number. Investors should look at their mutual funds collectively and ask: After combining all my schemes, what stocks, sectors, market-cap segments and investment styles am I actually exposed to, and does that match the diversification I intended?"
