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What is a focused mutual fund?
A focused fund is a mutual fund that invests and holds in a small number of stocks or bonds in a limited number of sectors.
According to the Securities and Exchange Board of India’s (Sebi’s) definition, focussed funds cannot hold more than 30 stocks in their portfolios.
Unlike other funds, focused MFs generally follow a multi-cap mutual fund approach, possess the potential to create wealth in the long term and minimises the risk of over-diversification.
Focused funds, also referred to as ‘best idea funds’, deal with small-cap, mid-cap and large-cap funds.
Focused funds, also referred to as ‘best idea funds’, deal with small-cap, mid-cap and large-cap funds.
Why invest in focused MF?
The core aim of the fund managers of a focused mutual fund portfolio is to select and invest in carefully-researched stocks after in-depth assessment and gain profitable returns.
When investors spread assets across several sectors, there is a possibility of limited returns as not all companies can outperform simultaneously.
Investors also believe that having a variety of stocks in a diversified portfolio can affect returns. A focused mutual fund ensures maximum returns through investment in high-performing assets.
These types of funds could be an optimal investment option for investors who seek a concentrated equity portfolio. In fact, experienced investors opt for focused mutual funds than new investors.
Risks
Focused mutual funds are highly-volatile as investments in a few stocks can either attract higher risk or higher returns.
Top-performing focused mutual funds (as of 2021)
- Axis Focused 25 Fund
- Aditya Birla SL Focused Equity Fund
- Principal Focused Multicap Fund
- Motilal Oswal Focused 25 Fund
- SBI Focused Equity Fund
- IIFL Focused Equity Fund
- ICICI Prudential Focused Equity Fund
- Sundaram Select Focus
- Franklin India Focused Equity Fund
- JM Core 11 Fund
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