If someone asks what are focused mutual funds, I will tell them that they are just opposite of diversified mutual funds.
When you diversify your portfolio well, you maximize the safety level of your portfolio, but at the same time, you slightly minimize the return generating capability of your portfolio
Focused fund doesn’t offer diversification as focused funds can have more than 30 stocks in their portfolio as per SEBI’s rules. These funds basically invest your money in few but quality stocks to generate high returns. But before you plan to invest, take a look at key points of focused funds.
Concentrated money in fewer stock
Focused funds mostly invest in 25 stocks. Furthermore, all money is not equally invested in stocks but instead, few stocks may have high exposure and remaining stocks may have less exposure.
Focused funds are for wealth creation
Investing in fewer stocks may make the portfolio more riskier but these funds choose only fundamentally strong. So in the long term or in a bull run, focused funds might create more returns.
More volatile than its benchmarks
Its easy to understand that investing in fewer stocks will make your portfolio volatile.
Focused funds has ability to outperform
As you read above points, focused funds invest in few but fundamentally strong shares. It’s quite obvious that the fund can outperform its benchmark.
Focused funds will bleed more in bear market
Well, that’s the only negative point in focused funds. It surly can outperform the benchmarks in the bull run. But in a bear market, these focused fund’s NAVs falls more than its benchmarks.
So these were the key points about focused funds. Comment down your views about focused funds in the comment box below. I would like to hear your views.
Note: this post is for educational purpose, please don’t take it as advice and make your investment decisions yourself.