Ajay’s core portfolio includes 3 schemes: a large-cap, flexi-cap, and multi-asset allocation scheme, with a small exposure to a couple of sectoral/thematic schemes. He believed he had built a well-diversified portfolio. However, one day, he compared his schemes through a mutual fund portfolio overlap tool.
He observed that the names of some companies (specifically, top large-cap companies) appeared across multiple schemes in the portfolio. The same company names were there in his large-cap, flexi-cap, and multi-asset allocation schemes, with the percentage holdings varying in each scheme.
In an attempt to build a diversified mutual fund portfolio, many investors face the challenge of portfolio overlap of varying degrees. A small portfolio overlap may be okay. However, beyond a certain percentage, it misses the objective of building a diversified portfolio with low to no overlap. In this article, we will understand how to build a diversified portfolio of India’s top 500 companies through 3 index funds with no overlap.
Investing in top companies with no overlap
You can build a simple mutual fund portfolio of 3 index funds that gives you exposure to India’s top 500 companies (by market capitalisation) with no overlap. These include:
- Nifty 100 Index Fund
- Nifty Midcap 150 Index Fund
- Nifty Smallcap 250 Index Fund
Let us look at the details of each of these.
Nifty 100 Index Fund
A Nifty 100 Index Fund invests in all the constituents of the Nifty 100 Index. The index includes India’s top 100 companies by market capitalisation. These are well-known largecap companies with an established track record.
When you invest in these companies, you get an opportunity to participate in their growth story and benefit from it. However, the growth rate may be lower than that of mid and smallcap companies. While these companies do well when the economy and stock markets are doing well, they are more resilient during an economic downturn and when stock markets are falling.
As an investor, the Nifty 100 Index offers you a diverse basket of 100 largecap companies spanning 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 & Consumable Fuels |
9.60 |
|
Reliance Industries |
6.70 |
Information Technology |
7.16 |
|
Bharti Airtel |
4.22 |
Automobile and Auto Components |
7.09 |
|
Larsen & Toubro |
3.60 |
Fast Moving Consumer Goods |
6.45 |
|
Infosys |
3.06 |
Metals & Mining |
5.35 |
|
State Bank of India |
3.01 |
Healthcare |
4.98 |
|
Axis Bank |
2.77 |
Power |
4.57 |
|
Kotak Bank |
2.13 |
Capital Goods |
4.32 |
|
ITC |
2.08 |
Telecommunications |
4.22 |
Source: https://www.niftyindices.com/Factsheet/ind_nifty_100.pdf
Note: The above information is as of 29th May 2026.
To invest in the index, 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 take the SIP route as it provides the benefit of Rupee Cost Averaging over the long term. In addition to the above index funds, some AMCs offer ETFs on the 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
The Nifty 100 Index has delivered a return of 10.48% CAGR over the last 5 years and a 16.24% CAGR since its inception. Being an equity index, it carries high risk. It is suitable for investors with an aggressive risk profile and a longer investment time horizon.
Nifty Midcap 150 Index Fund
A Nifty Midcap 150 Index Fund invests in all the constituents of the Nifty Midcap 150 Index. The index comprises India’s top 150 midcap companies by market capitalisation. These are mid-sized companies ranked 101st to 250th by market capitalisation amongst all companies listed on the National Stock Exchange.
The midcaps include emerging companies with high growth potential. When the economy and stock markets are doing well, these companies usually outperform the largecaps. However, in an economic downturn, and when stock markets are falling, they usually fall more than largecaps.
Midcaps are emerging stars that have proved themselves to some extent and still have a long growth runway ahead. While these companies are no longer small, they are midway in their growth journey. They have the potential to become largecaps in future and enter the Nifty 100 Index.
The index has created wealth for its investors, delivering returns of 19.20% CAGR in the last 5 years, and 17.19% CAGR since its inception. To invest in the index, 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
Investment in a Nifty Midcap 150 Index Fund carries very high risk and is suitable for investors with an aggressive risk profile. An investor must have a 5-year or longer time horizon when investing.
Nifty Smallcap 250 Index Fund
A Nifty Smallcap 250 Index Fund invests in all the constituents of the Nifty Smallcap 250 Index. The index comprises India’s top 250 smallcap companies by market capitalisation. These are small-sized companies ranked 251st to 500th by market capitalisation amongst all companies listed on the National Stock Exchange.
These are emerging companies with the potential to grow faster than mid and largecaps. At the same time, they carry a higher risk than mid and largecaps. Smallcaps are very volatile and can undergo sharp corrections during a market downturn.
These small companies, with their future journey, can go either way. Some of them will grow significantly, eventually becoming midcaps and then largecaps, and create wealth for shareholders. On the other hand, some of them will stumble on their growth journey and perish, in the process destroying shareholder wealth.
The index has created wealth for its investors, delivering returns of 17.10% CAGR in the last 5 years and 15.63% CAGR since its inception. To invest in the index, some of the options include the following.
- Bandhan Nifty Smallcap 250 Index Fund
- DSP Nifty Smallcap 250 Index Fund
- Edelweiss Nifty Smallcap 250 Index Fund
- Groww Nifty Smallcap 250 Index Fund
- HDFC Nifty Smallcap 250 Index Fund
- ICICI Prudential Nifty Smallcap 250 Index Fund
- JioBlackRock 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
Investment in a Nifty Smallcap 250 Index Fund carries very high risk and is suitable for investors with an aggressive risk profile. The investment time horizon must 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 India’s top 500 companies with no overlap. These include index funds benchmarked to the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 indices. Investing in these indices through index funds gives the much-needed diversification, index returns, and lower costs. You may invest regularly through monthly SIPs for a longer tenure 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, the smallcap index funds have the highest risk, midcap index funds sit in between, and largecap funds have a lower risk. You should consult a financial advisor who will recommend the appropriate funds based on your risk profile and the portfolio’s percentage allocation to each of them. Also, you must follow appropriate asset allocation at a portfolio level and invest in domestic and international equity funds, fixed income, gold, etc.