Archive · 29 Sep 2026
When Portfolio Overlap Becomes Mutual Fund Concentration Risk
Owning several mutual funds does not always mean your money is well diversified.
Different funds may buy many of the same companies.
If those companies fall, several funds in your portfolio could lose value at the same time.
A few shared stocks are not automatically a problem.
Investors should check how much money each fund has in those shared stocks.
They should also compare sectors, company sizes and investment styles.
Jiral Mehta suggested treating 40% overlap as a useful limit, but this is not a universal rule.
The main question is whether all the funds together provide the variety the investor intended.
Some overlap between mutual funds is normal, especially when funds share investment universes or market segments.
Overlap becomes a concern when common stocks, sectors or market-cap segments create substantially similar exposure.
There is no universal warning threshold, although Jiral Mehta suggested limiting overlap to 40%.
Investors should examine the weights of common holdings, not just the number of shared stocks.
Different strategies, styles, sectors and risk profiles can make some high overlap acceptable within a broader portfolio.
- Who
- Mutual fund investors, with guidance from Debasish Mohanty and Jiral Mehta.
- What
- The articles explain when overlapping holdings across mutual funds may create concentration risk and when overlap may remain acceptable.
- When
- The guidance applies when investors select, review or combine mutual fund schemes; no specific event date is given.
- Where
- Within investors’ combined mutual fund portfolios.
- Why
- Common holdings can cause several schemes to be affected by the same stocks, sectors, market-cap segments or investment styles.
Contextual Overlap Assessment
Use A Cautious Overlap Limit
How to judge overlap
Contextual Overlap Assessment
Debasish Mohanty said overlap should be assessed in context, including fund categories, investment universes, scheme weights and the influence of common holdings.
Use A Cautious Overlap Limit
Jiral Mehta said high overlap carries risk and suggested limiting overlap to 40% as a practical reference point.
Whether high overlap is acceptable
Contextual Overlap Assessment
High overlap can still be reasonable when funds have different proportions of common stocks, sector allocations, market-cap exposure, styles, turnover or risk characteristics.
Use A Cautious Overlap Limit
Investors should be cautious because funds with high overlap may provide less diversification than their number suggests.
- Suggested overlap limit
- Jiral Mehta suggested limiting overlap to 40%, but the articles say this is not a universal industry threshold.
- No universal threshold
- Debasish Mohanty said there is no percentage at which overlap automatically becomes a warning sign.
- Key measurement
- Investors should assess the weights of common holdings, not only the number of shared stocks.
- Higher-risk pattern
- Concentration in a few large companies, sectors, market-cap segments or styles can increase portfolio risk.
- Likely overlapping funds
- Large-cap, flexi-cap and large-and-mid-cap funds may share meaningful exposure to large companies.
- Other overlap sources
- Sectoral, thematic, actively managed and index funds can also hold many of the same stocks.