Focused Funds
Focused Mutual Funds are equity funds concentrating investments in a limited number of high-conviction stocks. SEBI mandates that these funds hold up to 30 stocks in their portfolio. Unlike diversified funds, focused funds aim to maximise returns by making concentrated bets on selected companies across market capitalisations.
What is a Focused Mutual Fund?
A Focused Mutual Fund invests in a small, carefully chosen portfolio of stocks, typically 20-30 stocks. These funds can invest across sectors and market caps, such as large, mid, or small, giving fund managers the flexibility to pick high-performing companies. They are designed to deliver high returns by focusing on quality over quantity.
Features of Focused Funds
- As per SEBI guidelines, these fund portfolios are limited to 30 stocks.
- Focused funds can invest in stocks across various market capitalisations and sectors, providing a balanced yet concentrated approach.
- Fund managers actively select stocks, aiming for high growth potential based on thorough research.
- Concentrated portfolios carry higher risks, but they also have the capability of higher returns compared to diversified funds.
List of Focused Mutual Funds
Advantages of Focused Funds
- High Growth Potential: Focused funds aim for higher capital appreciation by investing in a limited number of stocks.
- Experienced Fund Management: Focused funds are managed by expert fund managers who conduct in-depth analysis to select the best stocks.
- Flexibility: These funds can invest in stocks from any sector or market capitalisation, offering more dynamic investment opportunities.
- Long-Term Wealth Creation: Suitable for investors with a high-risk appetite looking for significant returns over the long term.
How to Invest in Focused Funds?
- Direct Investment: Investors can directly invest through the fund’s official website by completing the KYC (Know Your Customer) process.
- Mutual Fund Platforms: Online platforms like Stack Wealth allow users to invest in a diversified portfolio.
- Financial Advisors: Investors can consult certified financial advisors for tailored investment strategies in focused funds.
Who Should Invest in Focused Mutual Funds?
Focused Mutual Funds are suitable for:
- High-risk Investors: Those willing to take concentrated risks for potentially higher returns.
- Long-term Investors: Investors with a horizon of 5-7 years or more who can weather short-term volatility.
- Market-savvy Investors: Individuals who understand market dynamics and wish to make informed investment decisions.
- Diversified Portfolio Holders: Those looking to add concentrated, high-growth stocks to a diversified portfolio.
How do Focused Mutual Funds Work?
Focused mutual funds work by selectively investing in a limited number of high-potential stocks. Fund managers conduct in-depth research to identify companies with solid fundamentals, growth potential, and favourable market conditions. With a capped portfolio, these funds can take significant positions in each stock, allowing investors to benefit from the full potential of high-performing companies.
Taxation of Focused Mutual Funds
Short-term Capital Gains (STCG): If investments are sold within three years, STCG is taxed at 20%.
Long-term Capital Gains (LTCG): LTCG above ₹1 lakh is taxed at 12.5% for investments over three years.
Investing in focused funds offers the potential for high returns but comes with significant risk due to the concentration of investments. Continually assess your risk tolerance before choosing this investment route.
