In this episode of Smart Money, Rachana Ranade, a Finance YouTuber, discusses the mutual fund overlap and how one can avoid it.
While investing in mutual funds "every time you feel 'I should buy more and more MFs to diversify my portfolio', the problem is you feel you are diversifying; but in reality, you are not," Ranade said.
While investing, you need to check the portfolio composition, you will realise more or less they are the same. So even when you think you are diversifying, you are not, Ranade explained.
"You should be very sure of what you are buying. If you are buying two different mutual funds – let us say you are going ahead with an Axis Blue Chip Mutual Fund versus Canara Robeco Mutual Fund. There is a great possibility prima facie you feel you are diversifying your portfolio nicely, if you check the funds' holdings in that you will understand that maybe 70-80 percent of the portfolio is exactly the same," she said.
"That is the pain point and everyone has to try and identify whether there is a true overlap or not,” she said.
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