As an investor, you notice many mutual fund schemes delivering healthy returns over the years. And you come to admire a few fund managers because they just seem to be churning out top-notch performance, earning a ‘legendary’ status as mainstream press and social media amplify their achievements.
In your enthusiasm, you decide the star fund managers are your investment idols and the favoured/popular scheme they manage should be replicated.
So, you look to clone the popular fund’s portfolio by buying the same stocks as the scheme does.
That would mean you do not have to research about stocks to own, and you could save on fund’s expense ratio – anywhere from 50 basis points to 2.5 per cent depending on direct on regular plans. Sounds easy, isn’t it?
Nothing can be further from the truth. Cloning your favourite fund/fund manager’s portfolio is fraught with multiple flaws at the practical, operational and investment philosophy levels.
Here is why you must avoid trying to build a copycat portfolio or the clone of popular/well-publicised funds:
Questioning the choice
Before getting to the other aspects of replicating an ace fund, the first step to analyse is how you arrived at the scheme or fund manager itself.
Chances are you may have taken into consideration only the recent year or two’s performance and found that the scheme you selected did exceedingly well. Or you may have, at best, taken the trailing three or five-year returns and taken the chart toppers.
Now, scoring on trailing returns should not be reason enough for you to choose a fund.
For the starting point and the ending point can distort the picture. Discussions on social media and videos from influencers may sound convincing, though there may not be any sound reasoning there other than playing up recent returns.
Only by going over three or five-year rolling returns of a fund over the long term can you gauge its consistency and also its ability to breach standard benchmarks. Besides you will have to understand how the scheme has downsides during corrections or participates during rallies.
Finally, the risk associated with the fund may even make it unsuitable for your appetite.
So, for starters, your choice of the fund to replicate itself may be wrong or unsuited to your goals and requirements.
Operational hazards
Even if you get past the first stage and actually manage to select a fund that is ideal for your financial target and risk appetite, there are several challenges on the operational front.
First, when you want to replicate a fund’s portfolio, you are essentially dependent on the month-end factsheet disclosure, which comes a few days after the last working day of the month. However, the fund manager would actually be trading on stocks all through the month and moving in and out of stocks based on internal models and market dynamics, which you would not be able to know.
Before you see the subsequent month’s portfolio, the fund manager may have churned holdings substantially, especially in volatile markets – imagine October 2008, March 2020 or June 2022. So, it may be too late for you to act upon changes.
Second, the fund manager may hedge bets with derivatives or dramatically increase/decrease positions in companies, especially during turbulent times such as earnings season, geopolitical tensions, adverse trade tariff announcements. They may also take sudden cash calls. As a retail investor, you would not be able to do the same, especially as you wouldn’t know when it is being done.
Third, when fund managers buy or sell stocks of the schemes they oversee, they do not have any tax obligations to worry about. But, as a retail individual investor, each of your selling decision based on your favourite fund’s holdings will have short-term or long-term capital gains implications, thus reducing your overall returns.
Fourth, many star funds start increasing the number of stocks they hold when their asset size expands substantially. Some small cap funds hold 200 or more stocks. Even if a fund holds only 50 stocks, it would be impossible for you to buy and monitor so many stocks, especially in the same proportion as the fund holds in its portfolio.
This is a greater challenge when some of the stocks are high-priced in absolute terms. If a stock trades at ₹25,000 or higher, how would you as a retail investor buy large quantities of the share when you have limited cashflows? A fund, and more so, a popular one would get heavy and growing SIP flows as well as lumpsums.
Fifth, some funds also invest in foreign stocks. As a retail investor, even if you manage to buy those, you have the challenge of currency risk, whereas a fund will have a hedging strategy.
Finally, there is the question of trading costs as well. Funds buy large quantities of shares from brokers with who they have agreements on costs, volumes and so on, and get favourable terms. But as a retail investor, you have no such privileges and would have to pay all the costs associated with making a trade.
One style not enough
When you try to clone a single fund’s holdings, you are essentially betting on a single style to take you through to you financial goals.
For example, you may have taken only one of large, mid or small-cap funds or a flexi-cap scheme. The underlying style of the fund manager could be quality.
However, it takes many types of funds and fund managers to construct a diversified portfolio. So, one or more of value, growth, momentum, low volatility, and so on, also have a place in your portfolio based on your risk appetite and requirements.
Sticking to one fund’s portfolio would deny you the advantage of gaining from the expertise of fund managers across styles and market caps.
So, next time you think of replicating the portfolio of your favourite fund , think again.
Published on August 23, 2025