What are Focused Funds? Should I invest?

 

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 outperformers.

Top 5 Focused Funds

Here are top 5 focused funds that hit the bull’s eye.

Fund NameStyle1-Year Return3-Year Return5-Year ReturnInvest
SBI Focused Equity FundMulticap19.0%
16.6%

20.2%Invest
Axis Focused 25 FundMulticap20.3%
17.3%19.4%Invest
IDFC Focused Equity FundMulticap17.4%
14.7%16.7%Invest
Motilal Oswal Focused 25 FundLarge Cap9.2%
11.9%18.5%Invest
Sundaram Select Focus FundLarge Cap14.4%
12.1%15.5%
Invest

 

1.SBI Focused Equity Fund

This fund focuses on investing in high growth companies. This fund also looks at value stocks too. One can see lesser-known names in the portfolio, mainly because the fund manager believes that the market hasn’t recognized the business prospects of these stocks. The fund has outperformed its category by 7-10 percentage points and its benchmark by 5-7 percentage points in the 1, 3 and 5-year returns. The fund gave 20.8% (annualized) return since its inception in 2004. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹5.20 lakhs now.

2. Axis Focused 25 Fund

This fund aims to generate long-term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of up to 25 companies. It focuses on companies that have the capability to sail through their business cycles without being affected by short-term market volatility. The portfolio gives dual benefits of focus as well as diversification by investing across sectors. The fund has outperformed its category by 7-13 percentage points and its benchmark by 6-8 percentage points in the 1, 3 and 5-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 ₹5.08 lakhs now.

3. IDFC Focused Equity Fund

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.

4. Motilal Oswal Focused 25 Fund

A newbie in the segment, the fund is worth watching in the large-cap space. The fund follows ‘buy right, sit tight’ philosophy. It focuses on quality stocks with secular long-term growth prospects. The fund has 65% of its portfolio different from its benchmark constituents and doesn’t embrace the index. It allocates 80-90% to large-caps and 10-20% to mid-caps. The fund has outperformed its category by 3-8 percentage points and its benchmark by 5-8 percentage points in the 1 and 3-year returns. The fund gave 16.54% return since inception. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.95 lakhs now.

5. Sundaram Select Focus Fund

This fund is a concentrates on large-cap (>80%) companies. The fund follows a bottom-up approach in stock picking based on in-house research and fund managers conviction and would generally be focused around 3-4 themes. The investment strategy changes according to the market sentiments. The fund has outperformed its category by 2-4 percentage points and its benchmark by 2 percentage points in the 1 and 5-year returns. The fund gave 19.57% return since inception. A SIP of ₹5,000 p.m. in this fund started 5 years ago is worth ₹4.54 lakhs now.

 

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