The issue of many funds from one AMC

When you invest in many funds from a single asset management company, you must check for stock overlap.
By Kaustubh Belapurkar |  13-07-20 | 
 
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About the Author
Kaustubh Belapurkar, Director of Manager Research, Morningstar Investment Adviser India.

My time horizon is 10 years. My SIPs are in Axis Bluechip (Rs 15,000), Mirae Emerging Blue Chip (Rs 15,000), Axis Focused 25 (Rs 10,000), Parag Parikh Long Term Equity (Rs 10,000) and Canara Robeco Emerging Equity (Rs 10,000). I have Rs 10,000 in Axis Long Term Equity but am not interesting in investing any more in this fund. Should I add a small-cap fund with an SIP of Rs 10,000?

Based on the funds mentioned, this is your current asset allocation:

  • Indian Equity: 88.8%
  • International Equity: 4.5%
  • Fixed Income & cash holdings: 6.7%

We recommend adding a Short Duration or Corporate Bond Fund, allocate around 10-15% of your portfolio to it. Fixed Income not only helps lower the overall volatility of the portfolio but also provides liquidity.

You could consider IDFC Short Term, HDFC Corporate Bond and Aditya Birla Sun Life Corporate Bond Fund.

On the basis of the underlying holdings, the equity allocation is further split:

  • Large Cap: 76.3%
  • Mid Cap: 20.9%
  • Small Cap: 2.8%

This is a fair split. Since you have a 10-year horizon, you could potentially increase your holdings in mid and small caps by another 5% if you have the risk appetite.

While the funds you have in your portfolio are good in isolation, there is a fair bit of overlap. This is due to having three equity funds from the same fund house. Use the numbers to understand the portfolio overlap of stocks. For example, Axis Bluechip and Axis Focused 25 have an overlap of 0.54. This means that 54% of the portfolio is common between the two funds.

We recommend exiting Axis Long Term Equity Fund and/or Axis Focused 25 as they have a significant overlap between their portfolios and not really adding to the diversification. In lieu, you could either add a large-cap fund like Aditya Birla Sun Life Frontline Equity or if you are looking to take some exposure to smaller fare, add DSP MidCap.

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