Why your five mutual funds might really be one fund

A portfolio arrives on my desk most weeks looking like this: five equity funds, four of them large-cap or flexi-cap, bought over six years from four different sources. The investor believes they are diversified because they own five things.

They usually own about thirty stocks, three times over.

What overlap actually is

Every equity mutual fund publishes its portfolio holdings monthly. Two funds “overlap” to the extent that they hold the same stocks in similar weights. A large-cap fund is required to hold at least 80% of its corpus in the top 100 companies by market capitalisation. There are only 100 such companies. So two large-cap funds from two different AMCs will inevitably share a great deal — commonly 60% to 75% of their portfolio by weight.

Buying the second one does not reduce your risk. It reduces your ability to explain what you own.

Why it happens

Rarely because anyone was careless. It accumulates:

A fund bought in 2019 because it was topping the one-year charts.
A fund bought in 2021 because a relative recommended it.
A fund bought in 2023 because the NFO advertising was persuasive.
A fund bought last year because the previous three were “not doing much.”

Each purchase was locally reasonable. The sum is a portfolio nobody designed.

How to check yours

You need two things: a Consolidated Account Statement, and twenty minutes.

Pull your CAS. Go to the CAMS or KFintech website and request a Consolidated Account Statement by email. It arrives as a password-protected PDF, usually within minutes, and lists every mutual fund holding across every AMC against your PAN.
List your equity schemes by category. Large-cap, mid-cap, small-cap, flexi-cap, ELSS, sectoral. Write the amount against each.
Look for category stacking. More than two funds in the same category is where the redundancy almost always sits.
Check the top ten holdings of each fund in that category from its latest factsheet. If seven of ten names match across two funds, you have your answer.

What to do about it

Not necessarily anything immediate. Consolidating has costs — exit loads on units held under a year, and capital gains tax on the redemption. A cleanup that triggers ₹80,000 of avoidable LTCG to fix a structural inefficiency worth ₹15,000 a year is a bad trade.

The sensible approach is usually:

Stop the bleeding first. Redirect future SIP instalments away from the redundant scheme into the one you’re keeping. This costs nothing and fixes the problem going forward.
Consolidate gradually, using the annual ₹1.25 lakh LTCG exemption on equity, over two or three financial years.
Keep the fund with the better downside capture, not the one with the better recent returns. In a category where the holdings are 70% identical, the difference in outcome comes mostly from how the fund behaves in a fall.

The point

Diversification is not a count of schemes. It’s a count of genuinely distinct exposures — different market caps, different asset classes, different geographies, different behaviour in a drawdown. Five funds that all fall together in the same week are one fund wearing five names.

If you’d like us to run this analysis on your own CAS, that’s what a portfolio review is. It costs nothing and takes us about a day.