Some mutual fund investors think that having a smaller, focused portfolio can lead to higher returns. They believe that many mutual fund schemes deliver average returns because they invest in too many stocks, making the portfolio overly diversified. If you share this view, you might want to consider investing in focused mutual fund schemes.
What Are Focused Mutual Funds?
According to SEBI regulations, focused mutual fund schemes can hold up to 30 stocks in their portfolio. These funds are flexible, like flexi-cap funds, and can invest in companies of any size or sector. If this investment strategy interests you, you might want to explore more about focused equity schemes.
Since these funds have fewer stocks, the fund manager picks investments based on their strong belief in certain stocks. If their predictions are accurate, these funds can deliver excellent returns. However, if the manager’s stock choices don’t perform well, the scheme may face significant losses. This is the main risk of concentrated investments.
Similarly, if the manager identifies the right sectors or companies ahead of others, the fund can benefit greatly. On the other hand, poor choices can lead to substantial losses. With a concentrated portfolio, you either gain big or lose big, depending on how well stocks are selected.
Who Should Invest in Focused Funds?
If you are willing to take higher risks and plan to invest for at least seven years, these schemes may be suitable for you. Below are some recommended focused equity mutual funds for January 2025. Make sure to follow regular updates to track their performance.
- 360 ONE Focused Equity Fund
- SBI Focused Equity Fund
- Sundaram Focused Fund
- Quant Focused Fund
Performance Insights:
- SBI Focused Equity Fund: This scheme is in the fourth quarter for the last five months, whereas earlier it was in the third quarter.
- Sundaram Focused Fund: The fund moved to the third quartile last month after being in the fourth quartile earlier.
How These Funds Were Chosen
- Asset Size: Only equity funds with at least ₹50 crore in assets were considered.
- Mean Rolling Returns: Average returns calculated daily over the last three years.
- Consistency: Measured using the Hurst Exponent (H), which indicates how predictable a fund’s returns are:
- H = 0.5: The fund is random and hard to forecast.
- H < 0.5: The fund’s returns tend to revert to the average.
- H > 0.5: The fund’s returns show a consistent trend.
- Downside Risk: Focuses on negative returns.
- Outperformance: Measured using Jensen’s Alpha, which evaluates how much the fund has outperformed expected market returns based on its risk.
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