"Mutual fund" words with Piggy bank and stack of golden money increased with wooden background - saving, finance and business concept
Focused mutual funds are a category of equity mutual fund that invests in a limited variety of stocks. Such funds usually have investments in around 25 to 30 companies or even less. These companies are generally from a few sectors instead of a diversified mix of different sectors in other mutual fund categories. These funds seek to maximize returns by investing in limited but high performing assets with tremendous growth potential.
As per SEBI guidelines, a focused mutual fund can invest in up to 30 stocks. However, there are no such restrictions on other equity funds. Different categories of equity funds, generally, have 50 to 100 stocks in their portfolios. Since the investment can be made in a limited number of stocks, the focused funds are highly method oriented and have a strategy to select the winners and beat the benchmark returns.
Here are some key characteristics of focused mutual funds:
Here are some significant advantages of focused mutual funds:
Fund managers of focused mutual fund schemes are experts in the sector knowledge in which they invest. They select the stocks of companies only after researching them thoroughly.
Focused funds are primarily equity funds and therefore are taxed as equity funds. The Long Term Capital Gains (LTCG) on such funds are taxed at 10 percent if they are over Rs. 1,00,000. Short Term Capital Gains (STCG) are taxed at a rate of 15 percent.
Since focused mutual funds invest in a limited variety of stocks, they can generate huge returns with the right investment strategy and stock-picking. The extensive research-backed approach may also help generate returns that may be higher than the broader stock market returns.
Focused funds are concentrated funds, and the majority of times, there is a clear segregation of sectors and the stocks they invest in. Such segregation may or may not be there in other types of equity mutual funds.
Focused funds can invest in any sector and any company. They are free to choose a large-cap, mid-cap, or small-cap company to invest in. Thus, this gives the added benefit of diversification to the investors.
Here are some disadvantages of investing in focused mutual funds:
The fundamental objective of equity mutual funds is to give investors the benefit of diversification. But too much diversification does not help investors as can result in lower returns. This is where focused mutual funds come in handy. The same focused fund’s approach is to pick the right stocks and earn high returns for the investors.
There is also a downside as far as focused funds are concerned. There is also an increased risk that the investors are exposed to when the fund aims for high returns. Too much emphasis on a limited group of stocks can either hit the jackpot or completely go against the investors’ interest. To mitigate such risks, fund managers of focused funds, in general, employ a top-down strategy to select sectors and stocks that are potential outperformers.
As we know, focused funds invest in a small number of stocks, and these stocks can be very volatile. Therefore, focused mutual funds are suitable for seasoned investors or individuals who have a high-risk appetite.
Focused mutual funds have high risk as the returns may be much lower than the benchmarks because of their very nature. So, risk-averse investors or individuals looking for safe investment tools should avoid investing in these funds. Aggressive investors looking for high returns may consider investing in such funds as they can give high returns. Investors should keep a long-term horizon of at least 5 years to get the maximum benefit from these funds.
If you are looking to invest in focused mutual funds, here are a few points you should consider:
As discussed earlier, focused funds are risky as the entire corpus is invested in a basket of around 30 stocks. The risk is much higher than other equity mutual funds like a multi-cap fund, etc. Investors should understand that the returns earned on their investments may be lower than the market returns or vice versa.
There is an inherent cost attached to all mutual fund schemes in the form of an expense ratio. The expense ratio denotes the percentage of money used to manage the fund. Investors should check all the funds’ expense ratios and select the one with a low expense ratio. A low expense ratio means higher returns for the investors.
As stated earlier, focused funds can be very volatile in the short term. So individuals should avoid these funds if they are investing for a short period. Thus, these funds are suitable for investors who have the patience to invest for the long term, i.e., at least 5 years.
The tax treatment on focused funds is similar to any other equity-oriented mutual fund. If an investor is holding these funds for more than one year, the gains will be long-term and taxed at 10 percent. If the holding period is less than one year, the gains will be taxed at 15 percent. So it is better to invest in such funds for the long term to maximise the returns and tax benefits.
Focused funds or concentrated funds are high risks funds suitable for experienced investors. But the most significant advantage that stands out is the potential for higher returns. These funds are becoming an attractive option for new age investors as well. Such aggressive investors invest in these funds to beat the market returns over a long period. However, they should consider the risks associated and match them with their risk appetite and financial goals.
Here are the top-performing fund recommendations that investors can consider in this category:
About Fund
The scheme aims to invest in equity and equity related securities in a maximum of 30 stocks at a time. It is best suited for investors who have sufficient knowledge on various macro trends and want to make selective investments to fetch comparatively higher returns.
| Inception Date | January 02, 2013 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Ravi Goplakrishnan |
| Expense ratio | 1.52% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 35.05% | 26.57% | 22.05% | 19.42% | 15.81% |
About Fund
The scheme aims to offer investors an opportunity for long-term capital growth through investment focus on equity and equity related securities. It adopts a concentrated approach by investing in a limited number of securities at once.
| Inception Date | January 01, 2013 |
| Benchmark Name | S&P BSE 500 Total Return Index |
| Fund Manager | R. Srinivasan |
| Expense ratio | 0.69% |
| Fund type | Open-ended |
| Risk | Moderately high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 44.19% | 28.72% | 25.01% | 22.58% | 17.87% |
About Fund
The scheme aims to generate capital growth by investing in a focused portfolio comprising a limited number of equity and equity related securities. It invests in a maximum of 30 stocks of various market capitalizations at a time.
| Inception Date | January 01, 2013 |
| Benchmark Name | S&P BSE 500 Total Return Index |
| Fund Manager | Prakash Goel |
| Expense ratio | 0.79% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 36.46% | 31.36% | 20.40% | 16.69% | 14.96% |
About Fund
The scheme aims to offer capital appreciation through a focused portfolio comprising large cap or ‘bluechip’ company stocks. It is ideal for investors who have sufficient knowledge about the selection of stocks and are ready to take on higher risk levels for maximum profits.
| Inception Date | January 01, 2013 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Sanjeev SharmaAnkit Pande |
| Expense ratio | 0.57% |
| Fund type | Open-ended |
| Risk | Very high |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 38.76% | 31.06% | 21.68% | 17.95% | 18.04% |
Investors can follow the below-mentioned steps to invest in focused funds:
Every investment expert will suggest you to avoid putting all eggs in one basket and focus on diversification. This reduces the overall portfolio risk as the investments are spread across different securities. The key here is to add only enough stocks in the portfolio to optimise returns through diversification This is where focused mutual funds can work for you as it diversifies up to just the right level and are therefore suited for seasoned investors.
Focused mutual funds diversify the portfolio risk by investing across different market capitalisations without any specific restriction on percentage allocation to one segment. Since these invest in select stocks, they are best suited for seasoned investors who have knowledge on stock selection.
New investors must try and gain sufficient knowledge on stock identification along with industry basics before investing in focused mutual funds.
No, focused funds are open-ended schemes which can be entered and exited at any point as these do not have a lock-in period.
The risk levels of focused mutual funds are generally moderate to high and in some cases very high since they invest in a specific number of stocks of different market capitalisations.
Yes, most focused funds offer both SIP and lumpsum investment options for investors to choose from.
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