Are your two mutual funds secretly holding the same stocks? Enter any two funds and see their common holdings, overlap percentage, and whether you're truly diversified or just paying two expense ratios for one portfolio.
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A common myth: "I hold 5 mutual funds, so I'm well diversified." The reality: if all 5 are large-cap or flexi-cap funds, they almost certainly all hold HDFC Bank, Reliance, Infosys, TCS and ICICI Bank in their top positions. You're paying 5 expense ratios to own 1 portfolio. This is called closet indexing and it silently erodes wealth over years.
Overlap occurs when two or more funds hold the same stocks. If 60% of Fund A's top holdings match Fund B, you pay two expense ratios for one portfolio. When a common holding (HDFC Bank, Reliance) falls, it hits you twice.
Below 30% is healthy — funds are genuinely diversified. 30-60% is moderate — review if both are needed. Above 60% is high — consider dropping one. Some overlap is unavoidable for large-cap funds since Nifty 50 stocks dominate all large-cap portfolios.
High overlap: Nifty 50 Index Fund + Sensex Index Fund (90%+), Axis Bluechip + Mirae Large Cap (70-80%), HDFC Top 100 + ICICI Pru Bluechip (65-75%). Low overlap: Parag Parikh Flexi Cap + any pure large-cap (30-40%), any large-cap + small-cap fund (5-15%).
3-4 funds is optimal: 1 large-cap/index, 1 mid-cap or flexi-cap, 1 international (Parag Parikh or Motilal Oswal), 1 debt fund. Beyond 5-6 funds, complexity rises without improving diversification. Simplicity beats quantity.
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