Why to avoid portfolio overlapping?
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Portfolio overlapping in mutual fund/SIP is a common mistake many investors ignore while building their investment portfolio.
How does it happen?
Portfolio overlapping happens when multiple mutual fund schemes hold the same stocks in large quantities.
For example, if two or three funds invest heavily in the same companies, your investment diversification becomes limited even though you own multiple funds.
Why to check?
๐️♂️For better diversification
Checking portfolio overlap is important because many investors believe they are diversified, but in reality, they are investing in similar stocks through different mutual funds.
๐️♀️To reduce concentration risk
High portfolio overlap can increase risk during market corrections because all funds may fall together. It also reduces the real benefit of diversification, which is one of the biggest advantages of mutual fund investing.
Another drawback of portfolio overlapping is unnecessary duplication of investments. Instead of improving returns, it can create concentration risk and make your portfolio less efficient.
๐ To minimise expenses
Investors may also end up paying multiple fund management expenses for similar holdings.
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How to avoid?
To avoid portfolio overlaping, investors should regularly review their mutual fund portfolio and choose funds with
- Different investment strategies,
- Sectors, or
- Market capitalizations.
Conclusion :
Before investing, consult a professional mutual fund advisor or distributor for better portfolio allocation and smarter diversification according to your financial goals.
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