Question 1

Why is mutual fund overlap a problem for investors?

Accepted Answer

High overlap means your portfolio is more concentrated in a few stocks or sectors, which can increase risk during market downturns.

Question 2

What is a good percentage of overlap between mutual funds?

Accepted Answer

There is no fixed rule, but many advisors prefer an overlap below 50%–60% between two equity funds in the same portfolio.

Question 3

Is some mutual fund overlap normal?

Accepted Answer

Yes, some overlap is unavoidable, especially among large cap or index funds that track the same benchmark.

Question 4

Can overlapping mutual funds still deliver good returns?

Accepted Answer

Yes, overlapping funds can perform well in phases when their common holdings do well, but they can also fall together during a downturn.

Question 5

Does overlap matter if I am investing for the long term?

Accepted Answer

Even with a long term horizon, unnecessary overlap can expose you to higher volatility and reduce the benefits of diversification.

Question 6

How many mutual funds should I hold to avoid overlap?

Accepted Answer

For most retail investors, 3–6 well chosen equity mutual funds are enough to build a diversified portfolio.

Question 7

What should I do if two funds in my portfolio overlap heavily?

Accepted Answer

If two funds have very similar holdings and performance, consider exiting the weaker or more expensive scheme.

Question 8

How often should I review mutual fund overlap?

Accepted Answer

Review mutual fund overlap at least once a year or whenever you add a new fund to your portfolio.

Question 9

Which types of funds usually have high overlap?

Accepted Answer

Actively managed large-cap funds, flexi-cap funds with similar mandates and funds benchmarked to the same index often show high overlap.

Question 10

How can I reduce mutual fund overlap in my portfolio?

Accepted Answer

Start by listing all your funds, checking their categories and eliminating multiple funds that follow the same style or benchmark.

Mutual Fund Overlap

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