SEBI’s Push to Reduce Mutual Fund Portfolio Overlaps: What Indian Investors Should Know

Written by Sagar Raina | Published: March 02, 2026 | 8 min read

Many Indian mutual fund investors hold multiple schemes believing they are diversified, only to find their portfolios move in the same direction during market stress. SEBI’s recent focus on curbing portfolio overlaps aims to address this hidden concentration risk. Here’s a practical look at what portfolio overlaps are, why the regulator is concerned, and how investors can respond.

What Is Portfolio Overlap in Mutual Funds?

Portfolio overlap occurs when two or more mutual fund schemes hold the same stocks or bonds in similar proportions. This is common when funds follow comparable investment styles or benchmark indices.

While overlap is not inherently wrong, excessive similarity can reduce the benefits of holding multiple funds, especially during periods when specific sectors or companies underperform.

  • Common in funds with similar mandates or benchmarks
  • Often unnoticed without detailed portfolio analysis

Why SEBI Is Concerned About Overlaps

SEBI’s concern stems from the risk that investors may believe they are diversified when their portfolios are actually concentrated in a narrow set of securities.

In market downturns, this concentration can amplify losses, leading to outcomes that differ from investor expectations and stated risk profiles.

  • Mismatch between perceived and actual diversification
  • Higher downside risk during market stress

What Changes Could SEBI Introduce?

Based on public discussions and reporting, SEBI may explore clearer differentiation between schemes within the same fund house and tighter definitions around investment universes.

Any changes are likely to focus on transparency and risk disclosure rather than immediate restrictions, though final measures will depend on regulatory consultations.

  • Clearer scheme categorisation and disclosures
  • Greater accountability for fund differentiation

How Portfolio Overlaps Affect Retail Investors

For retail investors, overlaps can mean paying multiple expense ratios for similar exposure, without gaining meaningful diversification benefits.

This can also complicate portfolio review, as performance differences between funds may be marginal despite holding several schemes.

  • Limited diversification despite multiple holdings
  • Potential inefficiency in long-term portfolios

Steps Investors Can Take Now

Investors do not need to wait for regulatory changes to act. Reviewing portfolio holdings across funds can help identify unintended concentrations.

Advisors and online tools can assist in comparing fund portfolios, though investors should interpret results carefully and in context.

  • Review top holdings across your funds
  • Focus on asset allocation, not just fund count

Looking Beyond Equity: Role of Other Assets

SEBI’s focus on overlaps also highlights the importance of broader diversification across asset classes, not just within equities.

Debt funds and other fixed-income instruments can play a stabilising role, depending on an investor’s goals and risk tolerance.

  • Consider equity and debt together in planning
  • Align investments with time horizon and risk profile

Frequently Asked Questions

Is portfolio overlap illegal or against SEBI rules?

No. Portfolio overlap is not illegal. SEBI’s concern is about excessive overlap that may mislead investors about diversification and risk.

Should I exit funds if there is high overlap?

Not necessarily. Decisions should be based on overall asset allocation, goals, and risk tolerance, rather than overlap alone.

How can I check overlap between my mutual funds?

You can compare fund portfolios using fund fact sheets or online comparison tools, keeping in mind that holdings change over time.

Will SEBI’s move affect existing mutual fund schemes?

Any impact on existing schemes will depend on final regulations. Changes, if any, are likely to be phased in rather than abrupt.

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