Sir,I wants to Know using MF Portfolio Overlap Calculator Online, what is the Range of Overlap is Permissible /Acceptable for Good MFs .i.e Canara Large Cap and Nippon Large Cap,Overlap calculator show high % of overlap,What is the General Acceptable Range of Overlap we need to Keep as All MF are Same Stock Like HDFC,RIL,Infosys,etc Please explain.

Ans: You are asking a very thoughtful question. Checking portfolio overlap shows you are focusing on quality diversification. This is an important step in building a strong mutual fund portfolio.

» What Portfolio Overlap Means

Portfolio overlap shows how many stocks are common between two funds
Large cap funds often hold same top companies
Stocks like large private banks, IT companies and energy companies appear in many funds
So some overlap is normal and unavoidable

Overlap is not always bad. Excessive overlap reduces diversification.

» Why Large Cap Funds Show High Overlap

Large cap universe is limited
Most funds invest in top 50 or 100 companies
Fund managers prefer stable leaders
Therefore same stocks appear repeatedly
Hence large cap funds naturally show higher overlap

So high overlap in large cap category is common.

» General Acceptable Range Of Overlap

Below 30 percent – Very good diversification
30 to 50 percent – Acceptable and manageable
50 to 60 percent – Slightly high, review required
Above 60 percent – Too high, avoid holding both

This is a practical guideline, not a strict rule.

» Your Example Assessment

Two large cap funds usually show high overlap
Both invest in same top companies
Holding two similar large cap funds adds limited value
It increases duplication without improving diversification

Better to keep only one strong large cap fund.

» When High Overlap Is Still Acceptable

If investment styles are different
If one fund is more concentrated
If performance consistency is strong
If risk management differs

But in most cases, two large cap funds behave similarly.

» Better Portfolio Structure

Keep only one large cap fund
Add one flexi-cap or multi-cap fund
Add one mid-cap fund for growth
This reduces duplication
Improves diversification naturally

This structure is more efficient.

» What To Avoid

Holding multiple funds from same category
Selecting funds only based on past returns
Ignoring overlap completely
Frequently switching funds

Portfolio simplicity improves results.

» Finally
Some overlap is normal, especially in large cap funds. But when overlap crosses around 50 percent, it reduces diversification benefit. Instead of holding multiple similar funds, keeping fewer well-chosen funds gives better balance and clarity.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.linkedin.com/in/ramalingamcfp/