Clone Funds: Are You Also Investing? Check How To Avoid Doubling Down on The Same Stocks

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Investors can easily check overlap using fund factsheets or online tools like PrimeInvestor, AdvisorKhoj, or Dezerv. (AI Generated Image)

Owning five mutual funds doesn’t guarantee diversification, it might just mean you’re betting five times on the same 10 stocks. Many Indian investors proudly claim to have a “diversified” portfolio, only to discover during a market correction that all their funds crash together.

A report by The Financial Express (FE) found that a growing number of investors unknowingly hold “clone funds”, multiple schemes across different asset managers, but all heavily invested in the same large-cap stocks like HDFC Bank, ICICI Bank, Reliance Industries, Infosys, and SBI.

Hidden concentration risk

On paper, these portfolios look sophisticated. In reality, they are fragile towers of duplication. When a particular sector, such as banking or IT, faces a downturn, every fund in such a portfolio is hit simultaneously.

“Different fund names don’t mean different exposures. Benchmark bias ensures that most equity funds are hugging the same index heavyweights,” said Chinmayee P Kumar, finance-focused content professional, told FE.

The core issue lies in “index hugging” — fund managers closely tracking the Nifty 50 or BSE 100 to avoid underperforming benchmarks. As a result, large-cap, flexi-cap, and even multi-cap funds often converge into near-identical portfolios, amplifying market risks.

How to detect and reduce overlap

Investors can easily check overlap using fund factsheets or online tools like PrimeInvestor, AdvisorKhoj, or Dezerv. The overlap percentage is calculated by comparing the minimum common stock weights between two funds.

Below 25% overlap: Healthy diversification
25–33% overlap: Moderate duplication
Above 33% overlap: Clone funds — time to prune

To fix this, experts recommend:

Holding one fund per mandate (large-cap, mid-cap, small-cap).
Combining an index fund with an actively managed fund.
Reviewing overlaps annually.
Keeping single-stock exposure below 8% of total equity holdings.

Diversification isn’t about collecting fund names — it’s about spreading risk across uncorrelated exposures. If your top holdings repeat across funds, you’re not diversified, you’re concentrated.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should consult certified financial advisors before making any financial decisions.