Focused funds can be seen as the opposite of diversified mutual funds. There are many exciting categories and types of mutual funds to discover in the mutual funds universe.
Let us learn more about focused funds in this blog.
What Are Focused Funds?
Focused funds are a category of equity mutual funds that invest in a concentrated portfolio of a limited number of stocks. According to SEBI (Securities and Exchange Board of India) regulations, focused funds can hold a maximum of 30 stocks in their portfolio. These funds can invest across market capitalizations (large-cap, mid-cap, and small-cap) and sectors, providing fund managers the flexibility to choose high-conviction bets.
How Focused Funds Differ from Diversified Funds
The primary difference between focused funds and diversified funds lies in the number of stocks held in the portfolio:
| Feature | Focused Funds | Diversified Funds |
|---|---|---|
| Number of Stocks | Max 30 stocks | Typically hold 50-100 stocks |
| Risk Exposure | Higher due to concentrated holdings | Lower due to wider diversification |
| Potential Returns | Can be higher if fund manager’s stock picks perform well | More stable but may have moderate returns |
| Volatility | High due to limited diversification | Lower due to sectoral and stock diversification |
| Fund Manager's Role | Critical in stock selection and timing | More balanced approach across various stocks |
Focused funds require skilled fund management as the limited number of stocks means that every stock plays a crucial role in the overall portfolio’s performance.
Risk and Return Profile of Focused Funds
Risk Factors
1. Higher Market Volatility
Since the portfolio consists of fewer stocks, any negative movement in one stock can significantly impact the overall returns.
2. Stock-Specific Risk
Unlike diversified funds that spread investments across a wide range of stocks, focused funds rely heavily on a few stocks, increasing the stock-specific risk.
3. Sectoral Risk
If a focused fund has a high allocation to specific sectors (like banking or IT), it can be more vulnerable to sectoral downturns.
4. Fund Manager Dependence
Performance is highly dependent on the expertise and decision-making of the fund manager.
Return Potential
1. Higher Returns
If the selected stocks perform well, focused funds can generate superior returns compared to diversified funds.
2. Outperformance in Bull Markets
Focused funds tend to do well in bullish markets as high-conviction stocks rally strongly.
3. Volatility in Bear Markets
These funds can experience sharp declines when market conditions are unfavorable.
Top Performing Focused Funds in India
Top 10 Focused Funds Based on 1-Year Return
This table lists the top-performing focused funds based on their 1-year return. Invesco India Focused Growth Direct Plan leads with a return of 13.73%, followed closely by HDFC Focused 30 Growth Direct Plan at 12.94%. The table also includes each fund’s Total Expense Ratio (TER), which indicates the cost of managing the fund, and the Asset Management Company (AMC) managing the fund.
| Sr. No. | Fund | 1 yr return | TER | AMC |
|---|---|---|---|---|
| 1 | Invesco India Focused Growth Direct Plan | 13.73% | 0.58% | Invesco Mutual Fund |
| 2 | HDFC Focused 30 Growth Direct Plan | 12.94% | 0.67% | HDFC Mutual Fund |
| 3 | SBI Focused Equity Growth Direct Plan | 12.44% | 0.75% | SBI Mutual Fund |
| 4 | ICICI Prudential Focused Equity Growth Direct Plan | 10.26% | 0.64% | ICICI Prudential Mutual Fund |
| 5 | Bandhan Focused Equity Growth Direct Plan | 9.96% | 0.84% | Bandhan Mutual Fund |
| 6 | DSP Focus Growth Direct Plan | 8.98% | 1.00% | DSP Mutual Fund |
| 7 | Edelweiss Focused Growth Direct Plan | 8.60% | 0.69% | Edelweiss Mutual Fund |
| 8 | Canara Robeco Focused Equity Growth Direct | 7.85% | 0.53% | Canara Robeco Mutual Fund |
| 9 | Old Bridge Focused Equity Growth Direct Plan | 6.99% | 1.19% | Old Bridge Asset Management |
| 10 | UTI Focused Growth Direct Plan | 6.07% | 0.68% | UTI Mutual Fund |
Source: Kuvera, 27 Feb, 2025
Top 10 Focused Funds Based on 3-Year Return
The following table ranks the top focused funds based on 3-year returns. HDFC Focused 30 Growth Direct Plan is the top performer with 25.07%, followed by Invesco India Focused Growth Direct Plan at 20.85%. The TER (Total Expense Ratio) values indicate the cost efficiency of managing these funds, which can impact net investor returns over the long term.
| Sr. No. | Fund | 3 Yr Return | TER | AMC |
|---|---|---|---|---|
| 1 | HDFC Focused 30 Growth Direct Plan | 25.07% | 0.67% | HDFC Mutual Fund |
| 2 | Invesco India Focused Growth Direct Plan | 20.85% | 0.58% | Invesco Mutual Fund |
| 3 | Mahindra Manulife Focused Growth Direct Plan | 20.45% | 0.44% | Mahindra Manulife Mutual Fund |
| 4 | ICICI Prudential Focused Equity Growth Direct Plan | 20.37% | 0.64% | ICICI Prudential Mutual Fund |
| 5 | JM Focused Growth Direct Plan | 18.38% | 0.78% | JM Financial Mutual Fund |
| 6 | Quant Focused Growth Direct Plan | 17.54% | 0.67% | Quant Multi Asset, Multi Manager |
| 7 | DSP Focus Growth Direct Plan | 16.67% | 1.00% | DSP Mutual Fund |
| 8 | Franklin India Focused Equity Growth Direct Plan | 16.33% | 0.98% | Franklin Templeton |
| 9 | Canara Robeco Focused Equity Growth Direct Plan | 16.11% | 0.53% | Canara Robeco Mutual Fund |
| 10 | Tata Focused Equity Growth Direct Plan | 15.91% | 0.64% | Tata Mutual Fund |
Source: Kuvera, 27 Feb, 2025
Who Should Invest in Focused Funds?
Focused funds can be better for investors who possess the following:
- Have a high-risk tolerance and can handle market fluctuations.
- Are looking for long-term capital appreciation and can stay invested for 5+ years.
- Believe in the ability of a fund manager to select high-quality stocks.
- Want to take concentrated bets on a few selected stocks.
Who Should Avoid?
- Conservative investors looking for stability and consistent returns.
- Those who prefer low volatility and broader diversification.
- Investors with short-term investment horizons.
Wrapping Up
Focused funds can be a rewarding investment avenue for those who can stomach the volatility and believe in the expertise of fund managers. While they offer the potential for high returns, investors should carefully assess their risk appetite before committing to these funds. Conducting periodic reviews and selecting funds with a strong track record can help optimise returns while managing risks effectively.
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