Ajay’s core portfolio consists of 3 schemes: a large-cap, flexi-cap, and multi-asset allocation scheme, with small investments in some sectoral/thematic schemes. He believed he had built a diversified portfolio. However, one day, they compared their schemes through the mutual fund portfolio overlap tool.
They observed that the names of certain companies (in particular, top large-cap companies) appear in multiple schemes in the portfolio. Their large-cap, flexi-cap and multi-asset allocation schemes all had the names of the same company, with different percentage stakes in each scheme.
In attempting to build a diversified mutual fund portfolio, many investors face the challenge of varying degrees of portfolio overlap. A small portfolio overlap may be fine. However, beyond a certain percentage, it misses the objective of creating a diversified portfolio with little or no overlap. In this article, we will understand how to build a diversified portfolio of India’s top 500 companies through 3 index funds without any overlap.
Investing in top companies without any overlap
You can create a simple mutual fund portfolio of 3 index funds that gives you exposure to the top 500 companies in India (by market capitalization) without any overlap. These include:
- nifty 100 index fund
- Nifty Midcap 150 Index Fund
- Nifty Smallcap 250 Index Fund
Let’s look at the details of each of these.
nifty 100 index fund
Nifty 100 Index Fund invests in all the constituents of the Nifty 100 Index. The index includes the top 100 companies in India based on market capitalisation. These are well-known largecap companies with an established track record.
When you invest in these companies, you get the opportunity to participate in and benefit from their growth story. However, the growth rate may remain lower than that of mid- and smallcap companies. Although these companies perform well when the economy and stock markets are performing well, they are more resilient during economic downturns and when stock markets are falling.
As an investor, the Nifty 100 index offers you a diversified basket of 100 largecap companies spread across 17 sectors of the economy. The top 10 companies and sectors of the index are as follows.
Company Name |
weight (%) |
Sector |
weight (%) |
|
hdfc bank |
8.56 |
financial Services |
32.26 |
|
ICICI Bank |
6.75 |
Oil, Gas and Consumable Fuels |
9.60 |
|
Reliance Industries |
6.70 |
information technology |
7.16 |
|
Bharti Airtel |
4.22 |
Automobiles and Auto Components |
7.09 |
|
Larsen and Toubro |
3.60 |
fast moving consumer goods |
6.45 |
|
infosys |
3.06 |
Metals and Mining |
5.35 |
|
state Bank of India |
3.01 |
Health care |
4.98 |
|
Axis Bank |
2.77 |
Power |
4.57 |
|
Kotak Bank |
2.13 |
capital goods |
4.32 |
|
ITC |
2.08 |
telecommunication |
4.22 |
Source: https://www.niftyindices.com/Factsheet/ind_nifty_100.pdf
Note: The above information is till 29 May 2026.
To invest in indices, some of the schemes available to choose from include the following:
- Axis Nifty 100 Index Fund
- HDFC Nifty 100 Index Fund
- Bandhan Nifty 100 Index Fund
An investor can adopt the SIP route as it offers rupee cost averaging benefits in the long run. Apart from the above index funds, some AMCs offer ETFs on Nifty 100 index. These include:
- Nippon India ETF Nifty 100
- ICICI Prudential Nifty 100 ETF
- LIC MF Nifty 100 ETF
- Zerodha Nifty 100 ETF
- HDFC Nifty 100 ETF
- Motilal Oswal Nifty 100 ETF
Nifty 100 index has returned 10.48% CAGR over the last 5 years and 16.24% CAGR since its inception. Being an equity index, it carries more risk. It is suitable for investors with an aggressive risk profile and long investment horizon.
Nifty Midcap 150 Index Fund
Nifty Midcap 150 Index Fund invests in all the constituents of Nifty Midcap 150 Index. The index comprises India’s top 150 midcap companies by market capitalisation. These are medium-sized companies ranked 101st to 250th by market capitalization among all companies listed on the National Stock Exchange.
Midcaps include emerging companies with high growth potential. When the economy and stock market are performing well, these companies generally outperform largecaps. However, in economic recessions, and when stock markets are falling, they usually fall more than large caps.
Midcaps are rising stars that have proven themselves to some extent and still have a long way to go in their growth. Although these companies are no longer small, they are in the middle of their growth journey. They have the potential to become largecaps in the future and enter the Nifty 100 index.
The index has created wealth for its investors by delivering returns of 19.20% CAGR over the last 5 years and 17.19% CAGR since its inception. To invest in indices, some of the schemes available to choose from include the following:
- Aditya Birla Sun Life Nifty Midcap 150 Index Fund
- Bandhan Nifty Midcap 150 Index Fund
- Baroda BNP Paribas Nifty Midcap 150 Index Fund
- DSP Nifty Midcap 150 Index Fund
- HDFC Nifty Midcap 150 Index Fund
- ICICI Prudential Nifty Midcap 150 Index Fund
- Kotak Nifty Midcap 150 Index Fund
- Motilal Oswal Nifty Midcap 150 Index Fund
- Navi Nifty Midcap 150 Index Fund
- Nippon India Nifty Midcap 150 Index Fund
- SBI Nifty Midcap 150 Index Fund
- Tata Nifty Midcap 150 Index Fund
- UTI Nifty Midcap 150 Index Fund
Investing in Nifty Midcap 150 Index Fund carries very high risk and is suitable for investors with an aggressive risk profile. The investor should have a time horizon of 5 years or more while investing.
Nifty Smallcap 250 Index Fund
Nifty Smallcap 250 Index Fund invests in all the constituents of the Nifty Smallcap 250 index. The index comprises India’s top 250 small-cap companies by market capitalisation. These are small-sized companies ranked 251st to 500th in terms of market capitalization among all companies listed on the National Stock Exchange.
These are emerging companies that have the potential to grow faster than mid and large caps. Also, they carry higher risk than mid and large caps. Smallcaps are very volatile and can undergo sharp corrections during market downturns.
These smaller companies, with their future journey, can go in any direction. Some of them will grow significantly, eventually becoming midcaps and then largecaps, and creating wealth for shareholders. On the other hand, some of them will falter in their growth journey and perish, destroying shareholder’s wealth in the process.
The index has created wealth for its investors by delivering returns of 17.10% CAGR over the last 5 years and 15.63% CAGR since its inception. To invest in indices, some options include the following.
- Bandhan Nifty Smallcap 250 Index Fund
- DSP Nifty Smallcap 250 Index Fund
- Edelweiss Nifty Smallcap 250 Index Fund
- Grow Nifty Smallcap 250 Index Fund
- HDFC Nifty Smallcap 250 Index Fund
- ICICI Prudential Nifty Smallcap 250 Index Fund
- GeoBlackRock Nifty SmallCap 250 Index Fund
- Kotak Nifty Smallcap 250 Index Fund
- Motilal Oswal Nifty Smallcap 250 Index Fund
- Nippon India Nifty Smallcap 250 Index Fund
- SBI Nifty Smallcap 250 Index Fund
Investing in Nifty Smallcap 250 Index Fund carries very high risk and is suitable for investors with an aggressive risk profile. The investment time frame should be 5 years or more.
3 Index Funds: Investing in India’s Top 500 Companies with No Overlap
We have discussed how with just 3 index funds, you can invest in the top 500 companies of India without any overlap. These include index funds benchmarked on Nifty 100, Nifty Midcap 150 and Nifty Smallcap 250 indices. Investing in these indices through index funds provides much-needed diversification, index returns and low costs. You can invest regularly through monthly SIP for a long term of more than 5 years.
The portfolio percentage allocation to each index fund will depend on your risk appetite. All three being equity funds carry high risk. However, smallcap index funds have the most risk, midcap index funds sit in the middle, and largecap funds have the least risk. You should consult a financial advisor who will recommend appropriate funds based on your risk profile and the percentage allocation of the portfolio to each of them. Also, you should follow proper asset allocation at the portfolio level and invest in domestic and international equity funds, fixed income, gold etc.