Dezerv

Portfolio OverLap

This Mutual Fund Portfolio Overlap Tool identifies common stocks and calculates the overlap between 2 mutual fund schemes.

Fund A

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Fund B

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Only equity is considered in this calculation.

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0% Overlap

NO OVERLAP

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0 Stocks Overlapping in Mutual Funds Schemes

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Perfect diversification with no common holdings between the funds.

Key Differences

OVERVIEW
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Fund Size (₹)

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Riskometer

Expense Ratio

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Exit Load

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RETURNS
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1 Year Returns

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3 Year Annualised Returns

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5 Year Annualised Returns

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Returns Since Inception

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ADVANCED RATIOS
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Top 5

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Top 20

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Standard Deviation

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Sharpe Ratio

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Sortino Ratio

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All About Mutual Funds

Understanding Mutual Fund Portfolio Overlap

Mutual funds offer investors a convenient way to gain exposure to a diverse range of assets managed by professional fund managers. They provide an easy avenue for diversification. However, when building a portfolio of multiple mutual funds, it's crucial to pay close attention to the concept of portfolio overlap. Understanding this overlap is vital for making informed investment decisions and maximising the benefits of diversification.

High overlap among mutual fund investments is unfortunately quite common among investors, often occurring without their awareness. This phenomenon can be attributed to several factors.

Investors may gravitate towards funds with comparable investment strategies. For instance, multiple large-cap growth funds are likely to hold positions in many of the same companies.

Asset management companies (AMCs) frequently offer several funds with analogous themes. If an investor selects funds from the same AMC, overlap is inevitable.

High overlap undermines the fundamental principle of diversification, which aims to mitigate risk by spreading investments across different assets. When a portfolio is heavily overlapped, diversification becomes ineffective.

If a particular market sector or type of stock experiences a downturn and an investor's funds are highly overlapped, the entire portfolio becomes more susceptible to losses.

What is Mutual Fund Portfolio Overlap?

Mutual fund portfolio overlap occurs when two or more funds within your portfolio hold some of the same underlying securities. The degree of overlap can vary significantly. Funds with high overlap invest in many of the same stocks, whereas funds with low overlap have minimal shared holdings. This overlap impacts the overall diversification of your investment portfolio.

Mutual fund portfolio overlap is common, especially within the same category. For example, ICICI Prudential Bluechip Fund and SBI Bluechip Fund exhibit a moderate overlap of 47%. This means they share ownership of 31 stocks, creating a balanced mix of diversification and focused investment strategies.

This means they invest in many of the same blue-chip stocks across various sectors, focusing on banking and finance, information technology, pharmaceuticals, and consumer goods. Reliance Industries, HDFC Bank, ICICI Bank, Infosys, and Larsen & Toubro represent the most significant overlapping holdings.

The overlap includes stocks from diverse sectors like pharmaceuticals (Sun Pharma, Cipla), auto (Maruti Suzuki, Hero MotoCorp), and consumer goods (ITC, Hindustan Unilever). The substantial overlap indicates that these funds offer similar core exposure, reducing the diversification benefits of holding both.

Steps to Use Portfolio Overlap Tool

Here are the steps to follow:

  1. Select Mutual Funds: Select the two mutual funds you wish to compare. You can choose from funds you currently hold or those you consider for future investment.
  2. Analysis of Holdings: Once selected, the tool will analyse the holdings within each fund, focusing only on equity and preferred stocks.
  3. Calculate Overlap: The tool calculates the overlap by determining the weightage of each stock in both funds. It then compares these to ascertain what proportion of the stock is common between the two funds.
  4. View Results: The total overlap percentage is calculated by summing up the overlaps of all individual stocks. This figure represents the degree of similarity between the two funds' portfolios. Here’s how to read the output:
    1. Each circle in the Venn diagram represents one of the mutual funds you are comparing.
    2. The area where the circles overlap illustrates the percentage of portfolio overlap, showing how similar the funds are in their holdings.
    3. Directly below the diagram, find the number of overlapping stocks and the intensity of the overlap, categorised as follows:
      • 0% - No Overlap: Perfect diversification with no common holdings between the funds.
      • 1% - 20% - Low Overlap: High diversification, resulting in low overlap.
      • 20% to 60% - Moderate Overlap: Balanced mix of diversification.
      • 60% to 80% - Significant Overlap: Significant overlap, leading to reduced diversification.
      • 80%+ - Extreme Overlap: Most holdings are identical, resulting in very low diversification.
    4. Find detailed information about the instruments overlapping in both funds, including individual holding percentages.
    5. You will also compare key fund characteristics such as AUM, expense ratios, exit loads, returns, and performance and risk ratios.

Examples:

Scheme 1

Scheme 2

Overlap %

5Y returns - Scheme 1

5Y returns - Scheme 2

Parag Parikh Flexi Cap Fund

HDFC Flexi Cap Fund

31%

+24.65%

+20.68%

ICICI Prudential Bluechip Fund

SBI Bluechip Fund

47%

+18.85%

+16.68%

Mirae Asset Emerging Bluechip

Canara Robeco Emerging Equities

26%

+21.75%


+20.05%

HDFC Mid-Cap Opportunities Fund

Kotak Emerging Equity Scheme

30%

+25.74%

+25.60%

Nippon India Small Cap Fund

HDFC Small Cap Fund

17%

+32.25%

+24.95%

Data as of May 16, 2024

Why Does Portfolio Overlap Matter?

  • Risk Management: Overlapping funds increase your exposure to the same underlying securities. If several of your funds heavily invest in a sector or company that underperforms, the negative impact on your portfolio will be amplified. Excessive overlap can inadvertently create a less diversified and potentially riskier portfolio.
  • Diversification: One of the primary benefits of investing in mutual funds is diversification. By selecting funds with low overlap, you better distribute your investments across different stocks, industries, and market segments. This risk-spreading helps mitigate the potential impact of negative market movements on your entire portfolio.
  • Investment Strategy: When choosing mutual funds, it's essential to consider your overall investment strategy. If you want broad market exposure, choosing several funds that all invest in the same large-cap companies might not be the most effective approach. By analysing overlap, you can identify funds that complement each other and create a well-rounded portfolio aligned with your goals.
  • Cost Efficiency: If two or more of your funds own very similar stocks, you could be paying multiple management fees for exposure to essentially the same assets. Understanding overlap and potentially consolidating holdings can help optimise returns and minimise expenses.

What are the challenges of portfolio overlap information?

  • Dynamic Portfolios: Mutual fund holdings change frequently as fund managers adjust their portfolios in response to market conditions. An overlap analysis represents only a snapshot in time. The overlap may have shifted by the time you use the results to make decisions.
  • Category Bias: Significant overlap is expected within the same fund category. For example, large-cap funds will naturally invest in many of the same blue-chip stocks. Therefore, overlap percentages alone don't tell the whole story about diversification.
  • Misinterpreting Results: A high overlap percentage doesn't necessarily mean you need to take immediate action. Consider factors like your overall risk tolerance, time horizon, and the investment styles of the overlapping funds before making portfolio adjustments.
  • Data Focused: Portfolio overlap analysis is just one tool in an investor's toolbox. It's vital to consider a fund's track record, investment philosophy, sector allocations, fees, and overall suitability for your needs alongside overlap data.

What to do with portfolio overlap information?

  • Analyse the Extent of Overlap: Start by determining the actual percentage of overlap between your funds. A small amount of overlap is typical, but significant overlap (depending on your risk tolerance) needs attention.
  • Assess Investment Styles: Determine if the overlapping funds have similar investment mandates (value, growth, large-cap, etc.). Overlap between funds with the same style increases concentration risk, whereas overlap across different styles could offer diversification benefits.
  • Evaluate Your Overall Portfolio: Consider how the overlap affects your entire portfolio's diversification. Overlap between two funds is more concerning if they represent a large portion of your holdings, and also, considering your risk tolerance, excessive overlap might be less suitable for conservative investors.
  • Take Action: Adjust your portfolio by selling parts of overlapping funds and investing in different assets for better diversification. You can use other tools like Dezerv’s Wealth Monitor app to get suggestions on your portfolio.

Conclusion

Mutual fund portfolio overlap occurs when two or more mutual funds hold some of the same underlying securities. Some overlap is natural, especially between funds in the same category. However, excessive overlap can increase risk and undermine the benefits of diversification. Investors should be aware of portfolio overlap and consider factors like performance and expense ratios before deciding whether to adjust their holdings. This can be done by using Dezerv’s portfolio overlap tool.

Still got questions? We’re here to help.

Mutual fund portfolio overlap occurs when two or more mutual funds hold some of the same underlying securities. The degree of overlap, often expressed as a percentage, indicates how much of the fund's investments comprise the same stocks.
Some overlap is natural, especially between funds in the same category. However, excessive overlap or overlap between funds with similar investment styles can increase risk.
Not automatically. Consider other factors like fund performance, expense ratios, and overall investment goals before deciding.
Portfolio overlap matters because it directly impacts the diversification of your investments. Excessive overlap means multiple funds are heavily invested in the same securities, increasing your portfolio's risk if those securities or related sectors underperform.