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Are You Paying Twice for the Same Investment?

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How many mutual funds do you own? More importantly, do you know how many of them are essentially doing the same thing?

Many investors unknowingly fall into the trap of building bloated portfolios. Over time, they accumulate a variety of mutual funds based on recommendations, social media trends, or market hype. The result? An expensive portfolio riddled with overlapping holdings that silently drain returns.

This article explores the hidden cost of duplication, the behavioural biases that lead to it, and how an efficient strategy can help you get more out of your investment service.

The Overlap Problem

Portfolio overlap is more common than you might think. It’s when two or more of your mutual funds are invested in the same set of underlying stocks. This leads to unnecessary repetition of the same market exposure without any real diversification.

Why is this a problem?

  • You’re not really spreading your risk.
  • You’re paying multiple fund management fees for the same holdings.
  • It complicates performance tracking and rebalancing.

Let’s say you own three different large-cap funds. Despite their different names, they might all hold similar top stocks like Reliance Industries, Infosys, and HDFC Bank. Essentially, you’re paying extra to own the same companies multiple times.

The Expense Ratio Drain

Each mutual fund comes with an expense ratio—a fee charged annually by the fund house to manage your money. While these fees might seem small individually, they add up fast, especially in overlapping funds.

Consider this:

  • If you hold three similar large-cap funds, each charging 2% annually, you’re effectively losing up to 6% of your invested amount to fees.

Now, compare this with holding a single, well-performing large-cap fund. You reduce costs, simplify management, and potentially improve net returns.

Regular vs Direct Plans

  • Regular plans (sold through distributors) often carry higher expense ratios.
  • Direct plans (bought directly from the fund house or via a registered investment advisor) have significantly lower costs.

Fincart, as a professional investment service, helps investors make informed decisions between regular and direct plans to maximise returns and reduce unnecessary charges.

Behavioural Mistakes Amplify the Problem

Beyond fees, your own behaviour can worsen the problem. Many investors are unknowingly influenced by emotions and biases that lead to poor portfolio construction.

Common behavioural traps:

  • Recency Bias: Investing in a fund just because it performed well last year.
  • FOMO: Following the herd or acting on WhatsApp forwards.
  • Inertia: Holding on to outdated or underperforming funds because reviewing them feels overwhelming.

These patterns often lead to:

  • Buying high, selling low.
  • Owning redundant schemes.
  • Paying more without real benefit.

Working with a reliable registered investment advisor can help correct these behavioural pitfalls through rational and disciplined investing.

How Many Funds Do You Really Need?

There’s no fixed number, but most investors can address all their financial needs with just 4–6 funds. More than that, and you’re likely stepping into duplication territory.

A simple, well-structured portfolio might include:

  • 1 Flexi-cap or Index Fund (Core equity exposure)
  • 1 Mid or Small-cap Fund (For higher growth potential)
  • 1 Short-Term Debt Fund (Stability & liquidity)
  • 1 Global Fund (Diversification)
  • 1 ELSS (If tax-saving is a goal)

Every additional fund must earn its place by offering unique value. If two funds have 80% portfolio similarity, one of them likely needs to go.

Key Exit Considerations

Before you clean up your portfolio, be mindful of exit costs and taxes.

1. Exit Loads

  • Many equity funds charge an exit load of 1% if redeemed within one year.

2. Capital Gains Tax

  • Short-term Capital Gains (STCG): 15% tax on profits for investments held less than 12 months.
  • Long-term Capital Gains (LTCG): 10% on profits exceeding ₹1 lakh per financial year for investments held over 12 months.

Tip: If you’re trimming multiple funds, consider staggering exits over two financial years to double your tax exemption benefit.

Hidden Risks of Overdiversification

While diversification is a core investing principle, too much of it can backfire. Overdiversification dilutes the impact of your best-performing investments and clutters your strategy.

Risks of owning too many funds:

  • Harder to identify what’s working or not
  • Reduces the potential alpha (outperformance)
  • Makes the portfolio harder to align with financial goals

Instead of holding 12 average-performing schemes, a focused mix of 4–5 high-quality funds aligned with your risk profile is more effective.

Case Study: Trimming the Fat

Let’s take an example of a 40-year-old investor with 15 mutual funds accumulated over the past 10 years. After a thorough review, here’s what was found:

  • 7 funds had more than 70% portfolio overlap
  • 5 funds were underperforming their category average
  • 3 funds were chosen based on friend recommendations, not research

With the help of a wealth advisor from Fincart, the portfolio was reduced to 6 funds that covered all asset classes, delivered higher returns, and had lower costs.

This kind of cleanup leads to better focus, improved tracking, and clearer alignment with long-term goals.

Benefits of a Clean, Curated Portfolio

Streamlining your mutual fund holdings isn’t just about saving on fees—it’s about efficiency, clarity, and better financial control.

Advantages of a simplified portfolio:

  • Easier to track and monitor performance
  • Simpler rebalancing and fund review process
  • Quick nominee updates and better estate planning
  • Lower chances of duplication or style drift

Imagine updating just a few entries in a spreadsheet versus juggling dozens of look-alike schemes. It’s not only administratively easier, it’s financially smarter.

Conclusion: Less is More

In mutual fund investing, more is not always better. A cluttered portfolio leads to overlap, fee drain, and emotional decision-making. The path to long-term wealth isn’t through adding more funds, but through building a lean, purposeful portfolio that aligns with your goals.

What should you do now?

  • Review your current mutual fund holdings
  • Check for overlaps and high expense ratios
  • Eliminate redundancies

Fincart’s expert-led investment service is designed to help you make smarter, cost-efficient, and goal-aligned investment decisions.

In personal finance, clarity beats clutter. By trimming the excess, you make room for growth—of your wealth, your peace of mind, and your financial future.

Need help simplifying your investments? Connect with Fincart’s experts for personalised wealth management services today!