FOCUSED FUNDS

 

Focused funds, as the name suggest, invest solely in high-quality stocks with the potential to generate wealth in long term. The goal of this fund and fund manager is to build a successful portfolio by limiting investments to high conviction stocks with optimal risk-to-reward ratios. A focused fund can invest maximum of 30 stock with a minimum of 65% of the portfolio in equity and equity related securities, according to the mandate issued by the SEBI focused fund can invest in a wide range of market capitalization, including large, mid – cap and small cap companies. According to studies, once a portfolio is diversified over 20 – 25 stocks, unsystematic risk as measured by standard deviation reaches ideal levels. A focused fund is the only mutual fund with such restrictions, while other mutual funds are allowed to invest up to 100 stocks.

Now the question is who should invest in focused fund since it maintains a concentrated portfolio. So before investing in focused fund one should consider the following things

1.       Investor should be high risk tolerance.

2.       New investor should avoid this type of fund.

3.       Investor those have more than 5 years time horizon can invest in this type of fund.

Difference between focused and diversified fund

Factors	Focused Fund	Diversified Fund
No of Share	Limited to 30 stocks	Can invest in a basket of 50 to 100 stocks
Risk	Risk factor is more	Less Risky
Volatility	Higher	Lower
Return of investment	Have been able to generate more return in the last five years	Were able to give slightly lower returns in long term
Suited for	Aggressive investor with a high – risk appetite	Beginners who have just started their investment journey
As a portfolio	Can be a part of your satellite portfolio	Can be a part of your core portfolio.

Focused funds outperform the market in polarised markets. A polarised market is one in which a small number of stocks propel the market ahead while the bulk of listed stocks remain stagnant. If the stock chosen by the fund manager is included in that select list fund will outperform and vice versa. So before investing one should consider all the aspect carefully.