Mid‑cap mutual funds are often touted as a way to capture growth beyond the large‑cap Nifty and Sensex. A key metric that investors use to gauge how actively a fund manager is betting against the benchmark is the percentage of holdings that overlap with the fund’s index. In a recent study of 30 mid‑cap schemes, the overlap ranges from a modest 40% in the most active funds to a high 90% in those that closely mimic their benchmarks. The top five funds with the highest overlap largely mirror the Nifty Midcap 150, holding 85–90% of the same stocks, while the bottom five diverge sharply, holding only 35–45% of the benchmark constituents.
The divergence is not just a statistical curiosity—it reflects different investment philosophies. Fund managers with low overlap are betting on niche themes or under‑covered sectors, whereas those with high overlap rely on proven mid‑cap leaders. For the average investor, the question is whether a lower overlap translates into higher returns. 8% over their benchmarks, but only after adjusting for higher expense ratios and volatility.
Conversely, funds with high overlap tend to have steadier performance but offer little upside beyond the index. Retail investors should therefore look beyond headline returns and examine a fund’s overlap, fee structure, and risk profile. A well‑balanced portfolio can include a mix of active and benchmark‑tracking mid‑cap funds, but the key is to align the choice with your risk tolerance and long‑term goals.