A focused fund is an equity mutual fund investing in a limited number of stocks. As per SEBI guidelines, a focused fund can invest in a maximum of 30 stocks. Other equity mutual funds typically hold 50-100 stocks. Some focused mutual funds also state their objective to focus on the large-cap or mid-cap stocks. Other funds do not specify any such category focus and follow a bottom-up stock selection investment strategy. The objective of focused funds is to deliver high returns by investing in a limited number of quality companies with growth potential.
Why should one opt for Focused Funds?
The main aim of mutual funds is to provide optimal diversification. But beyond a limit, diversification becomes pointless and may lead to lower returns. The entire strategy of focused funds is to hit the bull’s eye with the right stocks and earn a high return. It forces the fund manager to buy material stocks. This approach helps fund managers to build stringent process to select a stock for their portfolio.
With higher returns, comes higher risk (losses) too. Too much concentration on few stocks can hit the bull’s eye or miss the target completely too. That said, accurate concentration can be a skill. The focused funds follow a top-down approach to select sectors and stocks and place calculated bets on the potential out performers.
IDFC Focused Equity Fund holds a concentrated portfolio of 30 stocks with a mix of core and tactical ideas. The core portfolio invests in growth-oriented stocks. The tactical portfolio invests in companies that are driven by a change in internal and external environment. The fund has outperformed its category by 3-7 percentage points and its benchmark by 3-5 percentage points in the 1 and 3-year returns. The fund gave 11.99% return since inception. A SIP of ?5,000 p.m. in this fund started 5 years ago is worth ?4.70 lakhs now.
If you are keen to invest in these funds I would highly recommend to contact us and we'll assist you in making the best investment.