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Are focused funds meant for you?

by Money Puzzle   ·  April 24, 2019   ·  

Are focused funds meant for you?

by Money Puzzle   ·  April 24, 2019   ·  

Focused funds are high risk high are high return options

SchemeDate1Y Avg Return3Y Avg Return5Y Avg Return
Franklin India Focused Equity Fund31/03/201923.9222.4420.69
Reliance Focused Equity Fund 31/03/201926.9723.1420.66
SBI Focused Equity Fund 31/03/201921.3519.1019.75
Quant Focused Fund 31/03/201923.7522.2019.03
Axis Focused 25 Fund 31/03/201919.0416.4018.02
Aditya Birla Sun Life Focused Equity Fund 31/03/201918.0517.3616.42
Motilal Oswal Focused 25 Fund – Regular Plan 31/03/201917.6614.5216.15
DSP Focus Fund 31/03/201918.0715.8114.39
Principal Focused Multicap Fund 31/03/201916.6814.9013.74
HDFC Focused 30 Fund 31/03/201918.6114.8113.23
ICICI Prudential Focused Equity Fund 31/03/201915.1114.0513.13
Sundaram Select Focus Fund – Regular Plan 31/03/201915.0612.2210.57
IDFC Focused Equity Fund – Regular Plan 31/03/201915.4912.1910.53
IIFL Focused Equity Fund – Regular Plan 31/03/20199.9911.40
IDBI Focused 30 Equity Fund – Regular Plan 31/03/2019 -5.23
BNP Paribas Focused 25 Equity Fund – Regular Plan 31/03/2019 -10.65

Source – Valueresearchonline

The answer to that ultimately lies in your risk profile and ability to remain invested for long periods.

A focused equity fund is a new category defined by market regulator SEBI. These funds run concentrated portfolios with a maximum of 30 stocks. Many of these funds are erstwhile large cap or mid and small cap funds which were converted to focused funds post the recategorization.

As a result, the portfolio leaning in terms of market capitalisation reflects the previous position in large cap or a mix of large mid and small cap – rather than being a true multicap fund in most cases.

Common features

  1. Limited number of stocks – mostly between 20-30 in number
  2. Most funds with the exception of 1 or 2 have a large cap bias
  3. The standard deviation or volatility of returns is higher than benchmark in most cases.

Here is a quick quiz to see if these funds are meant for you

  1. Are you looking for long term wealth creation?
  2. Can you absorb volatility in the short term?
  3. Are you patient enough to hold on even if the fund is giving you a negative return?
  4. Will you hold the fund at least for 7 years?
  5. Are you willing to invest some time by yourself or with an advisor to choose the right fund?
  6. Are you willing to pick the right fund manager rather than focus on the past returns of these funds?

If and only if your answer to all these questions is a YES, you should consider investing in a focused equity fund.

And remember diversifying your portfolio and adhering to asset allocation is the foundation for long term wealth creation. Don’t go putting all your eggs in one basket!

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