Focused Funds

Focused Mutual Fund is an equity fund that invests only in a few stocks (like 30 stocks or less). It is a different variant of equity fund that usually does not follow the principle of bulk diversification. Instead, the focus is on very limited stocks, but often high in quality.

According to the SEBI guidelines, a focused equity fund can invest only in a maximum of 30 stocks. However, they have the liberty to explore large, mid, and small-cap stocks, like multi-cap funds. As a result, diversification remains but is less in quantity.

Like an equity fund, a Focused mutual fund handles the pooled money of investors and invests in a maximum of 30 stocks as per the strategy. However, the fund manager shall conduct its own research and decide which stocks to invest in. This means they have to invest at least 65% of their total assets in such equity or related instruments.

After filling the minimum equity gap, the rest can be invested in either debt or liquid instruments (like cash). The primary goal of the focused fund is to invest in high-quality assets and maintain the portfolio's growth.

Focused mutual funds may sound similar to equity funds, but they have a distinct quality. Here's who can invest in focused funds:

• Those investors have the appetite to bear risk and can handle market fluctuations.
• Investors with an investment horizon of at least 5 years, who can wait until the stocks realize their true value. Since these funds invest in selective bets, it may take time to show results.
• As stock selection plays a critical role, these funds can suit investors who are comfortable relying on the fund manager's conviction and research.

Looking to Invest in Focused Mutual Funds?

With the Anand Rathi all-in-one mutual fund platform, you can explore and invest seamlessly.

Here's how to invest in focused funds with AR Invest:

Like every equity fund, even focused equity funds suit only a selective group of investors, which means some factors must be considered before investing. Some of them include;

• Portfolio concentration - Understand that focused funds invest only in up to 30 stocks. Any poor pick can impact the overall portfolio's performance.
• Risk level - Due to their equity nature, these funds are more volatile to market fluctuations, unlike other equity funds. They can only suit those who can handle short-term volatility.
• Fund manager's expertise - The return potential in these funds depends purely on the fund manager's stock-picking ability. Hence, always check the manager's track record and investment style before investing.
• Overlapping with your existing portfolio - There is a possibility that stocks within the focused fund overlap (or match) with your other mutual funds or stock holdings, giving overexposure to certain sectors or industries.

For Focused mutual funds, the tax rules are the same as those of other equity funds.

• If units are held for less than a year, STCG applies: Capital gains are taxed at 20% STCG.
• For units held more than 12 months: LTCG applies at 12.5%, with a tax deduction of ₹1.25 lakh, anything above this amount.