Diversified? Think again. Your mutual funds may be secretly cloning each other

Many Indian investors diversifying across mutual funds within the same fund house may be undermining their own strategy—due to a hidden threat: portfolio overlap.

A new analysis by wealth advisory startup Fynprint reveals that multiple mutual fund schemes—often within the same asset management company (AMC)—frequently hold the same top stocks, significantly reducing true diversification and exposing investors to unnecessary risk.

“High overlap means you’re essentially buying the same stocks across different funds,” Fynprint analysts noted. “That’s not diversification—it’s redundancy.”

Several structural forces drive this issue. AMCs often employ centralized research teams, creating a unified “house view” that guides stock selection across schemes. Fund managers also tend to replicate their top conviction bets in multiple funds. Regulatory constraints amplify the effect: SEBI rules require large-cap funds to invest at least 80% of assets in the top 100 stocks, naturally leading to similar portfolios across these schemes.

Hybrid funds, which mix equity and debt, often mirror the AMC’s flagship large-cap portfolios, creating overlap when held alongside equity funds. Additionally, many managers “hug” benchmark indices to limit underperformance, further contributing to duplication.

Fynprint’s data shows overlap between funds in the same AMC ranges from 40–70% in the same category and 10–30% across categories. The trend is especially concerning in rural areas, where limited financial literacy and heavy reliance on fintech platforms make it easier to accumulate overlapping schemes unknowingly.

To combat this, Fynprint recommends capping exposure to one or two schemes per AMC and investing across at least three to four different fund houses. Investors should aim for overlap below 33% to ensure effective diversification.

“Some overlap is inevitable, especially with quality blue-chip stocks,” Fynprint said. “But smart diversification lies in limiting that overlap while maintaining exposure to varied sectors and fund philosophies.”