Focused Funds

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We have discussed various equity categories, and I hope you have taken a look at the fact sheets and portfolio compositions of some of the funds. It is evident that mutual funds usually have a large number of stocks in their portfolios; typically ranging from 60-70 stocks.

 

Generally, it is believed that the more stocks you have, the less hazardous (and consequently, the lower) your return will be.

 

A focused fund differs in its approach – they create a concentrated portfolio comprised of just a maximum of 30 stocks. All investments are made after rigorous due diligence, which is why they often refer to them as high conviction bets. JM Financial’s ‘core 11’ fund is an unusual case, with only eleven stocks in the portfolio.

 

 

Due to their constricted portfolio, focused funds alter risk and return profiles dramatically compared to other equity mutual funds. You can expect these funds to offer high potential for returns as well as an elevated level of risk.

 

Here’s how the return profile of focused mutual fund will look-

 

 

For the last decade, returns have ranged from 7.25% to 16.75%. These figures should give you an idea of the risk associated with these particular funds.

 

A focused fund can be seen as an economical alternative to Portfolio Management Services, with comparable returns at a reduced cost and lower requirements for entry.

 

I want to emphasize that the focused fund is not the ideal option for someone beginning his or her journey in mutual fund investments. This is because these investments may be more volatile than diversified mutual funds. It is important to make yourself aware of this volatility, and gradually ease into market-linked investments before jumping in with Focused Funds – otherwise, you may be met with an unpleasant experience and never consider MFs as an investment option again. When you are more experienced in this area, a focused fund will be a great addition to your portfolio.

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