Fund Radar: Diversify, don't dummify

Diversifying your investment is great. Portfolio overlap? Not so much. It can be a side effect in your pursuit to diversify (spread your investments across funds). So, if you are investing in too many funds, ensure they are not investing in similar stocks. Take large-cap funds, for example. Investing in more than one active large-cap fund can be futile. Here's why: these funds invest at least 80 per cent of their money in the 100 largest companies by market value. Given their small investment pool of 100 companies, there is a strong likelihood of large-cap funds investing in the same stocks. The large-cap offerings from ABSL (Aditya Birla Sun Life) and Canara Robeco are prime examples. Their portfolio is 71 per cent similar to each other. Unsurprisingly, their performances dovetail with each other (ABSL's 20 per cent and Canara Robeco's 21.8 per cent) and saw negative returns in 18 out of 20 market downturns over the past 60 months.If you thought this is an outlier, the average overlap among large