Let's understand how you can invest to avoid overlap in your mutual fund portfolio
06-Feb-2023 •Sneha Suri
Is it wise to invest in flexi cap, large and mid cap, and small cap funds simultaneously from the point of view of overlapping of portfolio? - Anonymous
If you are a nuanced investor, you can decide on your allocation across large-, mid- and small-cap funds and cherry pick funds to build a portfolio. Make sure to periodically rebalance your portfolio too, whenever required. However, this may be cumbersome and less tax efficient.
As an alternative, investing in flexi-cap funds would be a more hands-off approach since these funds can invest across market capitalisation. While fund level allocations may differ, this mutual fund category, on an average, invests 70-75 per cent in large caps with the rest invested in mid- and small-cap funds.
Therefore, you can simply invest in two-three flexi cap funds.
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Since many flexi-cap funds have high exposure to large-cap stocks (and hence a high possibility of overlaps), investing in a separate large-cap fund doesn't make much sense. So, flexi-cap funds would do the needful.
For a more aggressive investor, a 10-15 per cent supplementary allocation to mid- and small-cap funds to derive extra returns can be recommended.
Click here to go to our Analysts' Choice section where you can pick funds for your different financial goals.
Suggested read: How many funds are needed to achieve adequate diversification?