This story is from October 16, 2023
Focused funds can boost your Mutual Fund portfolio
Experienced and long-term equity investors on the lookout for schemes where the fund manager can take concentrated high-conviction bets with a maximum of 30 stocks in the portfolio can consider focused equity mutual funds
What Are Focused Equity Mutual Funds?
How Many Such Schemes Exist?
Who Should Invest?
What Are Focused Equity Mutual Funds?
- Focused equity mutual funds follow a concentrated portfolio and according to regulatory guidelines, such schemes cannot have more than 30 stocks in their portfolio. Many such schemes have as low as 20-25 stocks in their portfolio. The portfolio is highly concentrated with the top 10 stocks accounting for as high as 55-70%. While the portfolio is diversified across sectors, the fund manager is free to allocate to large-, midor small-cap stocks based on his view of the market. These schemes aim to generate higher returns by investing in a limited number of high-conviction stocks
How Many Such Schemes Exist?
- As of August 2023, the Indian mutual fund industry has 27 focused equity mutual fund schemes that collectively manage 1.1 lakh crore
- The big advantage of such a scheme is that it gives the fund manager the freedom to allocate toward the best investment ideas across market capitalisations without restrictions. On the other hand, the fund manager of a large-cap fund needs to allocate at least 80% portfolio to the top 100 stocks by market capitalisation, while a multi-cap fund needs to allocate at least 25% each to large-, mid and small-cap stocks. If the fund manager gets a few calls wrong, due to a concentrated portfolio, the scheme could suffer and take a long time to bounce back
Who Should Invest?
- Focused equity funds are meant for investors with experience in the market who have a time frame of 5-7 years and can bear some volatility. This is because these funds have fewer stocks and concentrated portfolios besides lower diversification, which could lead to sharp movements and higher volatility. New investors are better off starting with large-cap or flexi-cap funds
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