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Focused Fund

Focused funds are a category of mutual fund investment that comprises a smaller variety of stocks. With this investment scheme, the funds are concentrated on limited variation from only a few sectors instead of a diverse mixture of different equity positions.

These funds mostly hold their positions in roughly 20-30 companies or less, while other funds hold positions in over 100 companies.

These funds are also known as "best idea funds" owing to their mandate of choosing a limited number of companies for purchasing stocks. The principal aim of these funds is to deliver maximum returns by investing in high-performing assets.

List of Focused Mutual Funds

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What are Focused Funds?

Focused funds are those mutual funds that consist of a limited variety of stocks. The primary purpose of focused mutual funds is to allocate their holdings across a restricted number of carefully researched equity and debt funds. Even though these funds do not offer the advantages that come with the diversification of funds, they bank on the benefits that come with careful research for selecting stocks.

Returns from these funds are considered to be more volatile. They are riskier than the mutual funds that invest in a large number of stocks but can also deliver higher returns than them. They are also alternatively known as "concentrated funds" or "under-diversified funds".

Features of a Focused Mutual Fund

The major features of a Focused mutual fund are as follows:

Limited Investment in the Funds Portfolio

A focused mutual fund can have no more than 30 stocks. In technical terms, it refers to managing a focused portfolio or betting on a small number of stocks.

No Restrictions on the Fund's Investments

Focused funds can be used to make investments in any company. They can own stocks from various industries and market capitalizations. That means focused equity funds can invest in large, medium, and small companies without restriction. In other words, these funds are similar to multi-cap mutual funds but with fewer stocks. Fund managers have the authority to allocate money among large, small, and medium-cap enterprises.

How Does a Focused Mutual Fund Work?

A focused fund is a kind of mutual fund that invests in a small group of securities that are related in some way. Focused funds provide precise market exposure rather than a diverse portfolio. Focused equity funds allocate their investments to a small number of highly researched securities. 

The primary goal of a focused mutual fund is to maximize returns by investing in high-performing assets. As a result, they select stocks based on their mission. Focused funds are often known as best-concept funds.

How Should You Invest in a Focused Mutual Fund? 

One of the many ways that you can invest in a Focused mutual fund is through Groww.

  • Download the official application from your Play Store or App Store.
  • Sign up on the application and complete your KYC.
  • Proceed further with your focused mutual fund investment. 

Why Should You Invest in a Focused Mutual Fund?

The major benefits of investing in these funds are:

a) Returns

Even though they are high-risk investments, they can maximize returns at times. With focused mutual funds, investors can maximize their capital gains more effectively.

b) Negates Limitations of Mutual Funds

Since mutual funds do not segregate companies and sectors, they can limit the returns by investing in stocks that do not perform well. However, with the concentrated funds, the investment is limited to the stocks of selective companies, thus negating the limitation of mutual funds.

c) Exposure to Selected Stocks

Since these funds can only be invested in up to 30 companies, fund managers must devote a significant amount of time and effort to selecting these specific stocks. This in-depth analysis goes a long way toward guaranteeing that only the best-of-breed stocks make it into the portfolio and that you have a chance to generate higher returns than the broader stock market.

Taxation Rules of Focused Mutual Funds

The taxations of a focused mutual fund are as follows:

  • Long-Term Capital Gains - 10% Without indexation (less than Rs. 1 lakh.)
  • Short Term Capital Gains - 15%

FAQs

Q1. What is a focused mutual fund?

A focused mutual fund is a form of equity mutual fund that only invests in a few stocks. Securities and Exchange Board of India (SEBI) has regulations that allow focused equity funds to invest in no more than 30 equities.

Q2. Are focused funds suitable for short-term investors?

Those looking to invest for a short period of time may not benefit from investing in focused funds. This is because the investment must last 5 to 7 years in order to maximize returns. 

Q3. What are the risks associated with a focused fund?

Restricting the amount of equities that can be invested in also entails significant dangers. Since a market downturn may impact concentrated fund investments, you should only invest if you have a high-risk tolerance.

Q4. Who should choose focused mutual funds?

Focused mutual fund investments are better suited to experienced than novice investors. The former has a high-risk tolerance, which is essential for focused funds. It is also appropriate for people with a five to seven-year investment horizon.

Q5. How do focused funds help with diversification?

While these funds invest in a focused portfolio of up to 30 stocks, these stocks can come from any industry. This ensures that the portfolio does not include any sector-specific investments. Therefore, it gives you diversification across sectors.

Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

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