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Tuesday, December 15, 2015

What is Mutual Fund Portfolio Overlap?

What is Mutual Fund Portfolio Overlap?

Mutual Fund Overlap occurs when you own two or more mutual funds that may have similar investment objectives and therefore hold many of the same securities.

Let's say you would like to invest in Fund ABC and also in Fund XYZ. After checking their portfolio holdings, you find that Fund ABC owns three companies' stocks i.e., Infosys, TCS & SBI and Fund XYZ has invested in Infosys, TCS & Reliance.

Here, you could clearly see that there is too much of a portfolio overlap. Both the funds have invested in Infosys and TCS shares. These are the common stocks owned by both the funds.

Mutual Fund Portfolio Overlap pic

 

As an investor, you don't want too much of an intersection between the circles- you want the least amount of overlap possible.

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