Are Your Mutual Funds Buying The Same Stocks?

Five SIPs can make an investment statement look diversified. One scheme invests in large companies, another can move across company sizes, and a third focuses on smaller businesses. But those labels do not tell you how much of your money ultimately reaches the same companies.

Choosing different fund houses does not settle that question either. Two schemes from different asset management companies (AMCs) can hold many of the same stocks, while two schemes from one AMC can have substantially different portfolios. To understand diversification, you need to look at the investments underneath the fund names and the amount you have allocated to each.

Can Mutual Funds From Different AMCs Hold the Same Stocks?

Yes. Separate fund houses make their own investment decisions, but their schemes can still invest in the same companies. Funds with similar mandates may draw from similar investment universes, and two index funds tracking the same index are designed to provide similar underlying exposure.

This is called mutual fund portfolio overlap. It can occur across fund houses as well as within one AMC. A different brand name does not necessarily mean a different set of investments.

Overlap is not automatically a problem. Two broad equity funds may share holdings while each remains diversified across many businesses. The question is whether their combined exposure serves your investment objective or leaves more money in particular companies and sectors than you intended.

Even adding up the number of stocks can give a misleading impression. Suppose one fund holds 60 companies and another holds 70, with 30 companies common to both. Together, they give you exposure to 100 distinct companies: 60 + 70 − 30, rather than 130.

That count tells you how many different businesses you own, but it says little about where most of your money sits. A company with a tiny allocation counts just as much as the largest holding. You therefore need to measure both the number of distinct companies and your combined investment in each.

How to Calculate Your Actual Stock Exposure Across Mutual Funds

Start with the current value of your investment in each scheme and its disclosed stock weights for a common portfolio date. Multiply your investment value by each stock's weight, then add the amounts for that company across all your funds. This gives an estimate of your indirect ownership through the disclosed direct-stock holdings.

Consider a hypothetical ₹5 lakh portfolio split equally across five schemes. The labels below stand for imaginary funds; the calculation works whether they belong to the same AMC or different AMCs.

Illustrative assumptions and calculations. Company X is fictional; the table shows only one holding from each imaginary scheme.

Company X accounts for ₹23,000 ÷ ₹5,00,000 = 4.6% of your portfolio. Adding the scheme weights to get 23% would be incorrect because each percentage applies to a separate ₹1 lakh investment.

The same method can be repeated for every company. Once you rank the combined amounts, you can see your largest underlying holdings and calculate how much of your money sits in the top five or ten companies. This is more informative than checking each fund's largest holdings separately.

The size of that exposure also helps explain a specific risk. If Company X's share price fell 20%, with every other holding and allocation unchanged, the effect through these direct-stock positions would be ₹4,600, or 0.92% of total portfolio value. This is a simplified sensitivity calculation; an actual market move could affect other holdings too.

For this exercise, use stock weights as a percentage of scheme net assets. Do not automatically scale the equity holdings to 100%, because a scheme may also hold cash, debt or other instruments. A direct-stock calculation also needs additional work to capture derivatives and investments held through other funds.

Does Adding Another Mutual Fund Improve Diversification?

An additional fund can introduce new companies, change the weights of companies you already own, or add a different type of investment exposure. Its contribution depends on both its holdings and how much money you allocate to it. The number of new stocks is only part of the answer.

For another hypothetical example, suppose a new fund holds 60 companies, of which 50 already appear in your portfolio. The remaining ten companies account for 15% of that fund's net assets. If you invest ₹1 lakh, ₹15,000 reaches companies you did not previously own; the rest goes into existing companies and any other assets in the scheme.

That does not make the new fund unsuitable. It could give you a different investment approach or deliberately change your allocation. But its contribution is different from the impression created by saying it adds a portfolio of 60 stocks.

Your allocation can also change concentration without adding or removing any company. In the five-fund example above, change the fund weights from 20% each to 35% in Fund A, 30% in Fund B, 15% in Fund C, and 10% each in Funds D and E. Keep the total investment at ₹5 lakh and every underlying holding unchanged.

Company X's combined weight now becomes (35% × 8%) + (30% × 7%) + (15% × 5%) + (10% × 2%) + (10% × 1%) = 5.95%. Its exposure rises from ₹23,000 to ₹29,750, although the list of companies you own remains exactly the same.

This is why a large company count cannot establish that a portfolio has low concentration. The distribution of your money across those companies matters just as much.

What Does a Mutual Fund Overlap Percentage Tell You?

A weighted overlap calculation compares the size of common stock positions in two schemes. One approach takes the smaller weight for each shared stock and adds those weights. It measures how much the two portfolios overlap by weight, rather than simply counting repeated names.

Suppose two imaginary funds have only three stocks in common. Company X has weights of 8% and 7%, Company Y has weights of 6% and 3%, and Company Z has weights of 4% and 5%. Under this method, their overlap is 7% + 3% + 4% = 14%.

That percentage describes the two funds. It does not tell you your personal exposure to any company, because it does not incorporate the amount you have invested in each scheme. A fund representing 5% of your portfolio has a different influence from one representing 50%, even if both overlap equally with another holding.

Before interpreting a tool's result, check its portfolio date and calculation method. A count-based comparison, a calculation based on total net assets and one that rescales only equity holdings can produce different answers. Also check whether the tool includes derivatives or looks through investments in underlying funds.

Use overlap alongside company concentration and the purpose of each scheme. A percentage by itself does not establish whether your portfolio suits your goals, and reducing overlap does not automatically reduce every investment risk.

Why Low Stock Overlap Does Not Guarantee Lower Risk

Two funds can hold different companies while remaining exposed to similar economic conditions. One could own a set of banks and another a different set, yet both remain sensitive to lending growth, funding costs and credit quality. A stock-by-stock comparison would miss that shared industry exposure.

The same issue can arise with company size or investment style. Funds holding different smaller companies may still face common liquidity pressures, while funds favouring expensive growth businesses may respond similarly to changing earnings expectations. Distinct stock names do not necessarily create distinct sources of risk.

Review diversification at several levels: individual companies, industries, company sizes and asset classes. SEBI's investor education material explains that diversification can help manage investment risk, but market-wide volatility cannot be eliminated simply by holding more securities.

Asset allocation adds another dimension. Equity, debt and gold have different risk drivers, although none guarantees protection in a downturn. Debt requires attention to credit quality, maturity, liquidity and interest-rate sensitivity; gold brings exposure to changes in its price.

Also look through the structure of the product. A gold fund of funds that invests in a gold ETF is another route to the ETF's underlying assets. Counting the fund and its ETF as separate diversifying assets would count the same exposure twice.

A portfolio with less money in equity may show a lower top-ten stock weight simply because more capital sits elsewhere. Compare concentration within the equity portion as well as across the whole portfolio, then assess the risks of the other assets separately.

How to Check Whether Your Mutual Fund Portfolio Is Diversified

Begin with your current investment values, rather than only your SIP instalments. Equal monthly SIPs do not necessarily produce equal portfolio weights, because investment dates and returns differ. Use holdings for the same date wherever possible so that you are comparing a consistent snapshot.

For a detailed calculation, use complete official portfolio disclosures where available. Standardise company names carefully and use security identifiers to match securities, while recognising that different securities can belong to the same issuer. A factsheet showing only top holdings cannot establish the full extent of overlap.

Include direct shares and other investments when assessing your overall concentration. A company held directly and through several mutual funds contributes to the same equity exposure. Shares and debt issued by the same company also deserve a combined review, although their risks and contractual rights differ.

The purpose of the exercise is to understand what each fund contributes to your money. Several fund houses can still leave you with similar holdings, while overlapping schemes can serve deliberate roles. Before adding another scheme, examine which exposures it introduces, which it increases and how those changes fit the goal you are investing for.