SIP Tips: If you are investing via SIP, avoid this mistake; fund overlap can lead to losses..

A Systematic Investment Plan (SIP) is a powerful tool for long-term wealth creation. However, merely starting an SIP is not enough; selecting the right funds and regularly analyzing the portfolio are equally important. Many investors, knowingly or unknowingly, make a common mistake: fund overlap.

This issue recently came to light during an analysis of Abhishek's portfolio. The 42-year-old investor contributes ₹50,000 per month via SIP, with a 10% annual step-up. His portfolio comprises seven funds, including Nippon India, Parag Parikh, ICICI Pru Equity & Debt, HDFC Midcap, Invesco India Midcap, Bandhan Small Cap, and Invesco Small Cap.

The problem arose when it was discovered that there is a 49% overlap between the Invesco India Midcap and Invesco Small Cap funds. This means that nearly half of his investment is allocated to the same stocks; while this creates an illusion of diversification, the risk is actually concentrated in one area. If the fund manager's performance suffers, a significant portion of the portfolio could be adversely affected simultaneously.

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