CA Sansaar
SEBI Tightens Norms to Reduce Mutual Fund Portfolio Overlap
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The Securities and Exchange Board of India (SEBI), as part of its latest reforms on mutual fund categorisation and rationalisation, has introduced stricter measures to address the issue of portfolio overlap among mutual fund schemes.
Portfolio overlap occurs when different mutual funds hold the same securities within their investment portfolios. This duplication can arise either within schemes offered by the same fund house or across funds held by an individual investor.
Such overlap is not limited to the presence of identical stocks alone. It may also involve similarities in the weightage of those stocks in the portfolio as well as exposure to the same sectors.
For investors, this can happen when they invest in multiple schemes within the same category. For instance, if an individual invests in two mid-cap funds, both schemes may have significant exposure to similar companies or sectors, reducing diversification.
A comparison between two well-known schemes—HDFC Mid Cap Fund and Nippon India Growth Mid Cap Fund—illustrates this point. Data from the Advisorkhoj.com mutual fund overlap tool shows that HDFC Mid Cap Fund, which currently holds around 77 stocks in its portfolio, shares nearly 56% of its holdings with the Nippon India Growth Mid Cap Fund.
Portfolio overlap occurs when different mutual funds hold the same securities within their investment portfolios. This duplication can arise either within schemes offered by the same fund house or across funds held by an individual investor.
Such overlap is not limited to the presence of identical stocks alone. It may also involve similarities in the weightage of those stocks in the portfolio as well as exposure to the same sectors.
For investors, this can happen when they invest in multiple schemes within the same category. For instance, if an individual invests in two mid-cap funds, both schemes may have significant exposure to similar companies or sectors, reducing diversification.
A comparison between two well-known schemes—HDFC Mid Cap Fund and Nippon India Growth Mid Cap Fund—illustrates this point. Data from the Advisorkhoj.com mutual fund overlap tool shows that HDFC Mid Cap Fund, which currently holds around 77 stocks in its portfolio, shares nearly 56% of its holdings with the Nippon India Growth Mid Cap Fund.
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