Fund Overlap

Reviewed by Vishnu | Updated on Aug 27, 2020

Introduction

A mutual fund overlap is said to occur when you invest in two or more fund schemes that invest in the same security of an entity or a company. An ideal investment portfolio is one in which your money is invested in various funds across various asset classes which help in diversifying your investments. If the entire funds are invested in the same assets/securities, it defeats the purpose of diversifying your portfolio.

Understanding Fund Overlap

To understand fund overlap better, let us consider that you invest in a fund house ABC, which focuses primarily on investing in the share of a company XYZ. Again, you invest in another fund house DEF which also predominantly invests in the company XYZ.

Since both fund houses, i.e. ABC and DEF direct most of their funds towards investing in the shares of XYZ, they are said to be overlapping each other.

An ideal investment portfolio can be achieved by only allocating your money in various funds, which invest across the asset class spectrum. In case the funds overlap, the overall loss associated with your portfolio will only be magnified if the asset classes that overlap incur any kind of loss.

Factors to Consider

  1. Mutual fund overlaps can be avoided easily. All you have to do is check if any of your invested funds prioritise the same asset class. Thanks to the technological advancements over the years, you can check if any of your funds overlap each other even online.

  2. There are various portals/websites that help in looking for mutual fund overlap. All you have to do is enter the schemes you have invested in. The site will run a check on the schemes and will let you know if they overlap.

  3. Diversifying your investment portfolio does not guarantee the prevention of losses. However, it will ensure that the losses are minimised. Investing in various asset classes across different sectors will not only facilitate risk mitigation but maximise the return on investment in line with the risk.