International Journal of Scientific Research and Engineering Development

This study investigates the structural risks emerging within the Indian mutual fund industry as a result of unprecedented growth in Assets Under Management (AUM), which expanded from ₹22.26 lakh crore in FY 2020 to ₹65.74 lakh crore in March 2025 (CAGR 24.18%). The research examines whether this rapid capital influx is outpacing the absorption capacity of investable asset classes, leading to portfolio overlap, concentration risk, and potential asset bubbles. Using a mixed-methods approach combining quantitative time-series analysis of AUM, valuation metrics, and portfolio holdings with qualitative regulatory assessment, the study finds significant evidence of capacity constraints. Key findings indicate that mutual fund growth is outpacing market capitalization growth by 1.86x, forcing funds into narrower segments. This has resulted in a critical portfolio overlap of 40-47% among large-cap funds, eroding diversification benefits. Furthermore, the study identifies highrisk conditions for bubble formation, evidenced by inverted valuation structures (mid-cap PE of 33x vs. large-cap PE of 22x) and a surge in thematic fund launches (74.3% of all NFOs). The research concludes that without regulatory intervention—such as real-time overlap monitoring and sector-level concentration limits—the industry faces heightened systemic risks, particularly in the event of market corrections.

Navdeep Singh, Nitin Bajaj, Sayan Chatterjee, "Mutual Fund Limited Asset Class Allocation, Portfolio Overlap, and Asset Bubble Formation Risks in India" International Journal of Scientific Research and Engineering Development, V8(6): Page(2632-2651) Nov-Dec 2025. ISSN: 2581-7175. www.ijsred.com. Published by Scientific and Academic Research Publishing.