Interpreting portfolio overlap

Portfolio overlap measures how many of the same stocks two funds hold, and at what weight. It answers a question most investors never think to ask: "if I buy this second fund, am I actually diversifying — or just buying my first fund again with a different name on it?" High overlap means two expense ratios for one portfolio.

How Dhanik shows it

Open two funds in the Compare tab and the overlap panel shows the percentage of the portfolios shared by weight, plus the list of stocks both funds hold. Weight matters more than count: two funds sharing 20 tiny positions overlap less meaningfully than two funds that both put 8% in the same bank.

Why overlap is so common in India

SEBI's category rules concentrate choices. A large-cap fund must put at least 80% in the top 100 stocks — so every large-cap fund fishes in the same small pond, and two of them can easily overlap 60-70%. Flexi-cap funds from different houses often crowd into the same index heavyweights too. Overlap isn't a scandal; it's a structural feature you need to check rather than assume away.

A worked example

Say you hold ₹6,00,000 split equally across two flexi-cap funds with 65% overlap. Effectively, about ₹3,90,000 of your money sits in one shared portfolio and only ₹2,10,000 is genuinely different. When the shared stocks fall, both funds fall together — the "diversification" you thought you bought never existed. You'd get more real spread from pairing one flexi-cap with a mid-cap fund, an international fund, or a different investment style altogether.

Rules of thumb

• Above ~50% overlap: the funds largely duplicate each other — keeping both mostly doubles your fees, not your diversification.
• 25-50%: acceptable for same-category funds; make sure the non-shared portion reflects a genuinely different approach.
• Below ~25%: the pairing adds real variety — typical when categories or styles differ.
• Also glance at sector overlap: two funds can hold different stocks yet both be crowded into financials.

What to do about high overlap

Finding 65% overlap between two holdings doesn't automatically mean selling — exits have tax consequences (how redemptions are taxed) and possibly exit loads. Practical options: direct future SIPs to the stronger fund and let the weaker one sit; replace the duplicate at your next rebalance; or accept the overlap consciously if both funds are excellent and you simply want more of that portfolio. What matters is that the choice becomes deliberate instead of accidental.

Use overlap to audit your existing holdings too — many portfolios built fund-by-fund over years turn out to be one index in five wrappers. Fewer, genuinely different funds usually beat many similar ones. Not investment advice; do your own research.

→ Check overlap between your funds in the Compare tab.