Recent analysis reveals that fund-house concentration poses a significant hidden diversification risk that most investors don't realize they face. According to Value Research Fund Advisor, 27% of the time, all funds from one AMC finish together in rankings, compared to just 12.5% chance if performance across categories were independent. This occurs when investors accumulate funds from the same house without intentionally concentrating their investments, often through bank recommendations or following successful fund performance. The analysis covers six diversified equity categories from 2018 to June 25, 2026, examining 23 AMCs with 193 observations where houses ran at least four funds across categories.
Long-term data reveals that diversified equity funds have consistently outperformed thematic and sectoral funds while carrying substantially lower concentration risk. A study covering 5-year rolling returns from 2016 to 2026 found that diversified equity funds slightly outperformed thematic and sectoral funds, demonstrating zero probability of generating losses over five-year rolling periods and greater consistency in delivering returns above 8%. This performance gap becomes particularly significant when considering the higher risks associated with concentrated sector exposure and fund-house concentration.
According to recent market analysis, owning more mutual funds does not necessarily translate to better diversification. The data reveals that stock overlap across SIPs can significantly impact portfolio performance and risk management. This finding challenges the common assumption that adding more mutual funds automatically improves investment diversification. The challenge is particularly pronounced when investors focus on thematic and sectoral funds, which promise high returns but often expose investors to significantly higher risks without delivering proportionately higher long-term returns. The analysis emphasizes that different funds from the same AMC can end up moving in the same direction at the same time due to shared investment philosophies and research teams.
The findings highlight the importance of thorough due diligence before making investment decisions and the need to focus on fund selection rather than fund-house loyalty. Historical data shows that investor interest in thematic and sectoral funds has surged in recent years, with assets under management growing at a much faster pace than the overall equity mutual fund industry. Between December 2020 and December 2025, 143 new thematic and sectoral fund offers collectively mobilised over ₹1.5 lakh crore, significantly higher than the amount raised by diversified equity fund launches. The analysis recommends choosing funds based on asset-allocation needs and each fund's ability to deliver consistent returns for the risk it takes, rather than imposing crude limits like 'no more than two funds from an AMC.'
As reported by market experts, investors must check both fund overlap and AMC concentration before adding another mutual fund to their portfolio. The analysis emphasizes that diversification across houses tends to follow naturally when funds are selected based on asset allocation needs and performance consistency. The most extreme example came in 2020, when credit problems forced the closure of six debt schemes at Franklin Templeton, demonstrating how investors who held several schemes from the same house discovered their diversification was not as broad as assumed. For most investors, diversified equity funds remain the stronger foundation for long-term wealth creation, providing balanced exposure across sectors, reducing the impact of market cycles, and eliminating the need to accurately predict sector rotations while maintaining genuine diversification across fund houses.
